Honesty Company has been experiencing a decrease in sales for the past three monthssince its competitor opened a shop right in front of Hail's store. To increase its sales, Hailis considering aexpects that 9% of the new accounts will be uncollectible. Collection costs are5% of new sales, production and selling costs are 78%, and accounts receivableturnover is five times. Assume income taxes of 30% and an increase in sales ofP80,000. No other asset buildup will be required to service the new accounts.liberalcredit policy However, by doing so,moreitWhatwouldbeHonesty'sincremental after-taxreturninvestment?onYour answer

The company gives more credit period to increase the sales but the new credit policy will be cost…

Answered: w accounts will be uncollectible en and…

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Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 6P

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Tonis Tech Shop has total credit sales for the year of 170,000 and estimates that 3% of its credit sales will be uncollectible. Allowance for Doubtful Accounts has a credit balance of 275. Prepare the adjusting entry at year-end for the estimated bad debt expense. (a) Based on an aging of its accounts receivable, Kyles Cyclery estimates that 3,200 of its year-end accounts receivable will be uncollectible. Allowance for Doubtful Accounts has a debit balance of 280 at year-end. Prepare the adjusting entry at year-end for the estimated uncollectible accounts.
Del Spencer is the owner and founder of Del Spencers Mens Clothing Store. Del Spencers has its own house charge accounts and has found from past experience that 10 percent of its sales are for cash. The remaining 90 percent are on credit. An aging schedule for accounts receivable reveals the following pattern: 15 percent of credit sales are paid in the month of sale. 65 percent of credit sales are paid in the first month following the sale. 14 percent of credit sales are paid in the second month following the sale. 6 percent of credit sales are never collected. Credit sales that have not been paid until the second month following the sale are considered overdue and are subject to a 3 percent late charge. Del Spencers has developed the following sales forecast: Required: Prepare a schedule of cash receipts for August and September.
Medwig Corporation has a DSO of 17 days. The company averages 3,500 in sales each day (all customers take credit). What is the companys average accounts receivable?
Martel Co. has 320,000 in Accounts Receivable on December 31, 20-1, the end of its first year of operations. The business is new, so it has no prior experience with uncollectible accounts. In Martels overall industry, the percentage of uncollectible accounts receivable is about 3%. For companies similar to Martel in size and operations, the percentage is about 5%. Martel decides to use the overall industry experience as the basis for its estimate of uncollectible accounts. Prepare the adjusting entry on December 31, 20-1 for Martel Co.s uncollectible accounts.
Honesty Company has been experiencing a decrease in sales for the past three months since its competitor opened a shop right in front of Hail's store. To increase its sales, Hail is considering a more liberal credit policy However, by doing so, it expects that 9% of the new accounts will be uncollectible. Collection costs are 5% of new sales, production and selling costs are 78%, and accounts receivable turnover is five times. Assume income taxes of 30% and an increase in sales of P80,000. No other asset buildup will be required to service the new accounts. What would be Honesty's incremental after-tax return on investment?
Annual credit sales of T Corporations are $540,000, having credit terms of net 60 days. 60 days is the average collection period for the company. The management of the company is planni to make changes in credit terms and adopt credit terms of 3/25, net 60. It is expected that all customers would be paying on the last day of discount period. Management decided to use decrease in account receivable to pay off bank loan which costs company 12%. Also, the management forecasted that the new policy would increase sales by 12%, Assume that the company earns 25% on sales before any discount, calculate the net change in income if the new credit terms are adopted. (Consider 1 year = 360 days) $5,742 $3.816 $4,596 $2.674
J Ltd. makes credit sales of $424,000 yearly The credit term offered by J Ltd. equals the average collection period ie, net 45 days. The company plans to adopt new credit terms. The new credit terms are 2/18. net 45. It is assumed that all the customers pay on the last day of the discount period. The company plans to use the amount of decrease in accounts receivable to reduce the bank loan that costs 10% Question 16 Assume that the new credit terms would increase the sales to 110% and the company earns 20% on sales before any discounts, determine the amount of net change in income if the company decides to adopt the new credit terms. (Use a 360-day year for calculations. Don't round intermediate calculations. Round the final answer to the nearest whole dollar) $8,400 $2.968 12 13 $2.120 $3.816
Ruth Company currently has $1,000,000 in accounts receivable. Its days sales outstanding (DSO) is 50 days. The company wants to reduce its DSO to the industry average of 32 days by pressuring more of its customers to pay their bills on time. The company's CFO estimates that if this policy is adopted the company's average sales will fall by 10 percent. Assuming that the company adopts thisthange and succeeds in reducing its DSO to 32 days and does lose 10 percent of its sales, what will be the level of accounts receivable following the change? Assume a 365-day year. B(Ctrl) - e to search inser 3 4 W E R D B
ABC sold boxes of candles at P1,000 each. For each box, ABC incurs variablecost of P750. Daily sales total 500 boxes over its 250-work day year. All salesare on credit. For the coming year, it plans to accept customers who have lessdesirable credit ratings. Sales are expected to increase by 10%. Averagecollection period will increase from 40 days to 50 days. Bad debts willincrease from 1% to 3% of sales. Fixed expenses will stay the same. Forprofitability analysis, ABC uses an 8% effective interest rate.Required: If ABC proceeds with its plan to accept the new market group. compute for the following: 1. increase in contribution margin 2. increase in receivables carrying cost 3. increase in bad debts 4. net advantage or disadvantage of the plan
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Snider Industries sells on terms of 2/10, net 35. Total sales for the year are $600,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 40 days after their purchases. Assume a 365-day year. What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the nearest whole number. days What is the average amount of receivables? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 35th day? Do not round intermediate calculations. Round your answer to the nearest dollar. $
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