Question

Starfish Industries’ sales budget for the first quarter of the upcoming year shows budgeted sales of $325,000, $350,000, and $310,000 in January, February, and March, respectively. All sales are made on credit. The cash receipts budget for March shows total cash receipts equal to $306,840. Starfish grants a discount to customers who pay within 10 days of the invoice. Starfish collects 60% of sales within the discount period, 20% in the month of sale but outside the discount period, 20% in the month following sale. What is the discount offered by Starfish, and what is the Accounts Receivable balance that will be reported in the March 31 pro-forma balance sheet?

Answer 1

Let the discount rate be "X%"

Collection from
February sales (350000*20%)	70000
March sales and after discount period (310000*20%)	62000
March sales and within discount period [310000*60% *(1-Discount% ) ]	[186000*(1-x %)]
Total collection in March	306840

On solving equation , 70000+62000+ [186000*(1-X%)] = 306840

                                    132000 + [186000*(1-X%)] = 306840

                                  [186000*(1-X%)] = 306840-132000

                                  [186000*(1-X%)] = 174840

                                   (1-X% ) = 174840 /186000

                                  (1-X%) = .94

                                  X% = 1-.94

                                      = .06 OR 6%

Amount of discount offered = 6%

b)

Accounts receivable as on March 31 =March sales * % to be collected in following month

                                 = 310000*20%

                                  = 62000