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Module 4. Practice Set 6 Answers

Fenwick Holdings reported cash sales of P220,000 in 2014. Its accounts receivable turnover was 3.5 times, so its credit sales were P1,592,500. Adding this to its cash sales, Fenwick Holdings' total sales for the year were P1,812,500. Riley Brothers has a DSO of 38 days and annual sales of P4,000,000. Given this information and assuming a 365 day year, its accounts receivable balance can be calculated as P416,438.36. If a firm has annual sales of P25,680,900 and the industry average collection period is 45 days, the firm's accounts receivable balance comparable to the

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443 views

Module 4. Practice Set 6 Answers

Fenwick Holdings reported cash sales of P220,000 in 2014. Its accounts receivable turnover was 3.5 times, so its credit sales were P1,592,500. Adding this to its cash sales, Fenwick Holdings' total sales for the year were P1,812,500. Riley Brothers has a DSO of 38 days and annual sales of P4,000,000. Given this information and assuming a 365 day year, its accounts receivable balance can be calculated as P416,438.36. If a firm has annual sales of P25,680,900 and the industry average collection period is 45 days, the firm's accounts receivable balance comparable to the

Uploaded by

Ronna Mae Dungog
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Practice Exercise No.

1. Fenwick Holdings reported cash sales in 2014 of P220,000. Accounts receivable at the
beginning of the year totaled P420,000, with a balance of P490,000 at the end of the year. If
the company's accounts receivable turnover is 3.5 for the year. Find the average
receivables.
Ave AR = (420,000+490,000)/2
Ave AR = 455,000.00

2. Same above, how much are its total sales for the year?

420k+490k=Ave A/R =455K


3.5 = x/455K
Credit Sales =1,592,500 + Cash Sales 220K = Total Sales =1,812,500.00

3. 'Riley Brothers' has a DSO of 38 days, and its annual sales are P4,000,000. What is its
accounts receivable balance? Assume it uses a 365-day year.

38 = x (365)/4M
X = 4M(38)/365 =416,438.36

4. If a firm has sales of P25,680,900 a year, and the average collection period for the industry
is 45 days, what should this firm's accounts receivable be if the firm is comparable to the
industry?
DSO = Ave Receivable*360/ Sales
45 days = 360x/25,680,900
X = 3,210,112.50

5. Sheffield Corp. had a balance in the Accounts Receivable account of P805,000 at the
beginning of the year and a balance of P902,000 at the end of the year. Net credit sales
during the year amounted to P8,065,000. What was the average collection period of the
receivables in terms of days?
DSO = Ave Receivable*360/ Sales
DSO = (805,000+902,000)/2*360 / 8,065,000 = 38.10 days

6. Flying Tigers, Inc., has net sales of 779,000 and accounts receivables of 165,000. What is
the firm's accounts receivables turnover?
779/165=4.72 times
7. Amanda's interior Design has credit sales of P783,000, costs of goods sold of P418,000 and
average accounts receivable of P107,900. How long does it take its credit customers to pay
for their purchases?
DSO = Ave Receivable*360/ Sales
DSO = 107,900*360/783,000 = 49.61 days
8. Data from Keniston Corporation's most recent balance sheet and income statement appear
below:

This Year Last Year

Accounts
P128,000 P114,000
receivable

Inventory P228,000 P193,000

Sales on account P813,000

Cost of goods sold P597,000

The average collection period for this year is closest to?


Ave AR=121K x360/813K=53.58 days
9. Tara Company's budget shows the following credit sales for the current year: September,
P25,000; October, P36,000; November, P30,000; December, P32,000. Experience has
shown that payment for credit sales is received as follows: 15% in the month of sale, 60% in
the first month after sale, 20% in the second month after sale, and 5% is uncollectible. How
much cash will Tara Company expect to collect in November as a result of current and past
credit sales?
September 25,000 x 20% = 5,000
October 36,000 x 60% = 21,600
November 30,000 x 15% = 4,500
Total 31,00.00
10. The Bear Rug has sales of P811,000. The cost of goods sold is equal to 63 percent of sales.
The beginning accounts receivable balance is P41,000 and the ending accounts receivable
balance is P38,000. How long on average does it take the firm to collect its receivables?
DSO = Ave Receivable*360/ Sales
= (41K+38K)/2*360/ 811K
= 39,500*360/811K
= 17.53 days.

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