Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit
ID: 2751988 • Letter: M
Question
Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 2/10, net 30. Based on experience, 60 percent of all customers will take the discount. (Enter your answer as directed, but do not round intermediate calculations.)
Required: (a) What is the average collection period?
Average collection period days
(b) If the company sells 1,360 forecasts every month at a price of $2,460 each, what is its average balance sheet amount in accounts receivable? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)
Average accounts receivable $
Explanation / Answer
(a) Credit terms are 2/10, net 30, this means the buyer must pay within 30 days of the invoice date, but will receive a 2% discount if they pay within 10 days of the invoice date
Average collection period = No of working days / Accounts recievable ratio
Assumed :
a. No. of working days is 260
b. Credit Sales of 1,000 uits @ $100/unit
Based on experience, 60 percent of all customers will take the discount of 2% and the 40% would be the standard price.
Accounts receivable = (1000*60%*98) + (1000*40%*100)
= $58800 + $40000
= $98800
Accounts recievable ratio = Net Credit sales/ Average accounts receivables
= 100000/ (98800/2)
= 2.024
Average collection period = No of working days / Accounts recievable ratio
= 360/ 2.024
= 177.86 or say 178 days
(b) If the company sells 1,360 forecasts every month at a price of $2,460 each
Then 60% of 1360 would be sold at a discount of 2% i.e 816 units at a price of $2410.8 each = $1967212.8
The other 40% would be sold at standard rate i.e 544 units at a price of $2,460 = $1334240
Total Accounts Receivable = $1967212.8 +$133424
= $2100636.8
Average Accounts Receivable = $2100636.8 / 2
= $1050318.4