Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit
ID: 2764116 • Letter: M
Question
Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 3/30, net 60. Based on experience, 60 percent of all customers will take the discount. (Enter your answer as directed, but do not round intermediate calculations.)
If the company sells 1,310 forecasts every month at a price of $2,410 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).)
Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 3/30, net 60. Based on experience, 60 percent of all customers will take the discount. (Enter your answer as directed, but do not round intermediate calculations.)
Explanation / Answer
Solution:
(a)
Average Collection Period = (Percentage of Customer who avail discount x Credit Period allowed for availing cash discount) + (Percentage of Customer who not avail discount x Net Credit Period allowed for payment to customer)
Average Collection Period = (0.60 x 30 days) + (0.40 x 60 Days) = 18 days + 24 days = 42 days.
Explanation – 60% customer avail discount and pay within 30 days. 40% customer does not avail discount and pay amount in 60 days.
(b)
Forecasted monthly sales unit = 1,310 Units
Forecasted Yearly sales unit = 1,310 x 12 = 15,720 Units
Selling Price per Unit = $2,410
Total Monthly Sales in dollars = 15,720 x $2,410 = $37,885,200
Average Accounts Receivable = Year Sales x Avrage Collection Period / 360 days
= $37,885,200 x 42 days / 360 days = $4,419,940
Assumed 1 year = 360 days