Accounts Receivables Paper 7

1

Effective September 1, a company initiates seasonal dating as a component of its credit policy, allowing wholesale customers to make purchases early but not requiring payment until the retail selling season begins. Sales occur as follows:
Date of sale . . . Quantity sold
September 1 . . . 300 units
October 1 . . . . 100 units
November 1 . . . . 100 units
December 1 . . . . 150 units
January 1 . . . . .50 units
• Each unit has a selling price of $10, regardless of the date of sale.
• The terms of sale are 2/10 net 30, January 1 dating.
• All sales are on credit.
• All customers take the discount and abide by the terms of the discount policy.
• All customers take advantage of the new seasonal dating policy.
• The peak selling season for all customers is mid- November to late December.
For the selling firm, which of the following is not an expected advantage to initiating seasonal dating?






2

Effective September 1, a company initiates seasonal dating as a component of its credit policy, allowing wholesale customers to make purchases early but not requiring payment until the retail selling season begins. Sales occur as follows:
Date of sale . . . Quantity sold
September 1 . . . 300 units
October 1 . . . . 100 units
November 1 . . . . 100 units
December 1 . . . . 150 units
January 1 . . . . .50 units
• Each unit has a selling price of $10, regardless of the date of sale.
• The terms of sale are 2/10 net 30, January 1 dating.
• All sales are on credit.
• All customers take the discount and abide by the terms of the discount policy.
• All customers take advantage of the new seasonal dating policy.
• The peak selling season for all customers is mid- November to late December.
For sales after the initiation of the seasonal dating policy on September 1, total collections on or before January 11 will be






3

Which of the following describes a firm’s credit criteria?






4

A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from 75 to 50 days and reduce the ratio of credit sales to total revenue from 70 to 60%. The company estimates that projected sales would be 5% less if the proposed new credit policy were implemented. The firm’s short-term interest cost is 10%.
Projected sales for the coming year are $50 million. Calculate the dollar impact on accounts receivable of this proposed change in credit policy. Assume a 360-day year.






5

A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from 75 to 50 days and reduce the ratio of credit sales to total revenue from 70 to 60%. The company estimates that projected sales would be 5% less if the proposed new credit policy were implemented. The firm’s short-term interest cost is 10%.
What effect would the implementation of this new credit policy have on income before taxes?






6

A company enters into an agreement with a firm who will factor the company’s accounts receivable. The factor agrees to buy the company’s receivables, which average $100,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at an annual rate of 10% and charge a fee of 2% on all receivables purchased. The controller of the company estimates that the company would save $18,000 in collection expenses over the year. Fees and interest are not deducted in advance. Assuming a 360- day year, what is the annual cost of financing?






7

A company with $4.8 million in credit sales per year plans to relax its credit standards, projecting that this will increase credit sales by $720,000. The company’s average collection period for new customers is expected to be 75 days, and the payment behavior of the existing customers is not expected to change. Variable costs are 80% of sales. The firm’s opportunity cost is 20% before taxes. Assuming a 360-day year, what is the company’s benefit (loss) from the planned change in credit terms?






Result

Total Questions:
Correct Answers:
Wrong Answers:
Percentage: