01 Jan A company has an average

Module 5 discussion

Problem set 1

Determine whether the following is a source or use of fund:

A dividend is paid

Issue of short-term debt

Long-term debt decreased by $1,000,000

Next year’s taxes are prepaid

Wages and salaies are paid

Accounts receivable balance is reduced

Accounts payable balance is reduced

Marketable Securities are purchased

Marketable Securities are liquidated

A bank loan is repaid

Problem set 2

Determine whether the following will INCREASE, DECREASE, or have NO EFFECT on the operating cycle

Accounts payable goes up

Accounts receivable goes down

Customers take longer to pay for the goods

Payments to suppliers are accelerated

Inventory takes longer to get sold

Accounts Receivables Turnover ratio increases from 5 times to 7 times

Accounts Payable Turnover ratio increases from 5 times to 7 times

InventoryTurnover ratio increases from 5 times to 7 times

Problem set 3

ABC Corporation has the following sales collection policy: 25% of the sales are on cash and the remainder on credit. 40% of the credit sales are received in the first month after the sale. 40% of the credit sales are received in the second month after the sale. 18% of the credit sales are received in the third month of after the sale. 2% of the credit sales are bad debts and not received. Suppose the company has the following expected sales: Jan $50,000, Feb $60,000, March $70,000, April $45,000, May $66,000. Determine the cash collections for May.

ABC Corporation has the following sales collection policy: 25% of the sales are received in the same month, 50% of the sales are received in the first month after the sale. 20% of the sales are received in the second month after the sale. The remainder are received in the third month after the sale. Suppose the company has the following expected sales: Jan $50,000, Feb $60,000, March $70,000, April $45,000, May $66,000. Determine the cash collections for May.

Problem set 4

The terms of trade are 2/15 net 60. Compute the effective rate of forgoing the cash discount.

A company has an average collection period of 20 days and A/R balance of $100,000. Compute the annual credit sales. Assume 365 days.

A company has an average collection period of 25 days and annual credit sales of $300,000. Compute the A/R balance. Assume 365 days.

Problem set 5

The terms of the sale were 1/7, net 21. What is the effective annual rate of interest for the credit period for this sale?

ABC Company sells 3,500 units of its product each year at a price per unit of $275. All sales are on credit with terms of 1/7, net 30. The discount is taken by 40 percent of the customers. What is the average collection period? What is the amount of the company’s accounts receivable ?

ABC Company has an average collection period of 18 days and annual sales of $694,000. What is the average investment in accounts receivables as shown on the balance sheet?