Statement of Financial Position Cash10,000 Accounts payable$15,000Accounts receivable70,548 Notes payable35,548Inventory20,000 Current liabilities$50,548 Current assets$100,548 Long-term debt200,000Fixed assets500,000 Equity$350,000Total assets$600,548 Total liabilities & equity $600,548 Construct the Pro-forma Statement of Comprehensive Income and Statement of Financial Position based on the current credit policy and the two proposed credit policies. Calculate the average collection period, net profit margin, return on assets, and return on equity for both the current and the proposed policies. How does the company compare with the industry average in terms of its average collection period, profitability, and returns on assets and equity under the current and proposed policies? 4-Which credit policy should the Samuelsons choose? Provide reasons for your recommendation. Case 3: Credit Policy Management CaseLuvly Jubbly Inc., is a wholesaler of merchandise with a British flavour. The merchandise isdistributed to Canadian retailers in all provinces. Due to the rise in popularity in Canada ofBritish television shows such as Downton Abbey and Sherlock, the company's sales havegrown by an average of 15% per year over the last five years. The company's sales areexpected to grow by a more modest 10% next year, with all costs and expenses growingproportionately with sales.The company was started 10 years ago by Camilla and Phillip Samuelson, who emigratedfrom Sweden to Canada 15 years ago. Camilla and Phillip and their three daughters arehuge fans of all things British. Before they started the company, they were avid collectors ofBritish memorabilia, particular those for the long-running British soap, East Enders. Afterone particularly unsettling disagreement with an online retailer of British memorabilia(concerning a misprint on a mug that said "West Enders rule!"), Camilla and Phillip decidedto combine their business acumen with their love of British memorabilia and started theircompany. With profits from the business, they were able to put all three daughters throughuniversity. One of their daughters, Margaret, now works for them as their office manager.Margaret is responsible for sending out invoices and bills, checking on when these invoicesand bills come due, and calling customers if bills are still unpaid 60 days after sale.Even with the recent growth in sales, the Samuelsons have noticed a steady decline in theirquarterly net profit in the last two years. They think that this may be due to their currentpolicy of giving trade credits. When they first started 10 years ago, to attract customers totheir new business they set their credit policy to net 50, which was more generous than thewholesale industry average of net 30. Since then, the company has built up a steadycustomer base, but has retained the net 50 credit policy. Unfortunately, the rising popularityof British shows and their associated memorabilia in Canada has enticed more companiesinto the business, including mega-companies such as Walmart.In the midst of this increased competition, a severe financial crisis hit the world market twoyears ago, forcing some of Luvly. Jubbly's customers to reduce their orders and forcing a fewinto bankruptcy. As a result, bad debt increased to about 2% during the last two years. Theupcoming year is the first year that bad debt is forecasted to drop back down to its historicallevel of 1%. Under the current net 50 policy, 85% of customers pay by Day 50, and theremainder pay 10 days later. With the delays in collecting from customers, the Samuelsonshave had to use the company's line of credit to pay its expenses. Their bank, the United Bankof Canada, sets both short-term and long-term debt interest rates for the company at 15%.At this point, considering the company's lowered net profit, Camilla and Phillip are finallyready to take a deeper look at their credit policy, and if necessary, to change it. They askedtheir second daughter, Diana (who has an MBA degree), to take a look at their books. Aftercompleting her analysis, Diana gave them two possible alternatives for their credit policy,with suggested outcomes: Alternative #1: 2/20 net 30Lose 5% sales50% of customers will pay at Day 2040% of customers will pay at Day 3010% of customers will pay at Day 60Cash, inventory, fixed assets, accounts payable, long-term debt, and equity willremain unchangedAlternative #2: 2/25 net 45No lost sales60% of customers will pay at Day 2535% of customers will pay at Day 455% customers will pay at Day 60Cash, inventory, fixed assets, accounts payable, long-term debt, and equity willremain unchangedIndustry average: 2/20 net 30Average collection periodNet profit margin = 5%Return on assets = 5.2%Return on equity = 13%The company's most recent statement of comprehensive income and statement of financialposition are presented below.The Samuelsons will have to make a decision on the company's credit policy based on theavailable information.Cost of goods soldStatement of Comprehensive IncomeSales$500,000300,000$200,000100,000$100,000Gross profitOperating expensesEarnings before interestand taxesInterest expense=Earnings before taxes28 daysIncome taxes (35%)Net income35,332$64,66822,634$42,034

Name: Statement of Financial Position Cash10,000 Accounts payable$15,000Acc
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Description: Statement of Financial Position Cash10,000 Accounts payable$15,000Accounts receivable70,548 Notes payable35,548Inventory20,000 Current liabilities$50,548 Current assets$100,548 Long-term debt200,000Fixed assets500,000 Equity$350,000Total as