1. A company’s accounts receivable total P25,000 and the turnover rate is 15 times in one year.

A
turnover rate of 10 times in one year is desired to increase sales by 20%. How much must be the
increase or decrease in accounts receivable?
2. A firm’s sales amount to P1,200,000. Sales terms are being revised from n/60 to n/45 and sales
are expected to decrease by 15%. How much is the increase (or decrease) in receivables as a result
of this change?
3. The following bits of information are available from the financial records of Conan’s Corp. for
2022.
Sales P750,000
Net Credit Sales 66.67%
Net Cash Sales 33.33%

Accounts Receivable
Balance, January 1, 2022 P75,000
Balance, December 31, 2022 50,000

What was the accounts receivable turnover in 2022?

For items 4-5. To improve the credit and collection policies of Bwang A. Co, the following data for 2022
were gathered for study:

Accounts Receivable, Jan. 1 P112,000

Accounts Receivable, December 31 P140,000
Bad debts losses 6,300
Allowance for uncollectible accounts, Jan. 1 10,500
Allowance for uncollectible accounts, Dec. 1 7,000
Sales (all sales were made on credit) P630,000

4. How much was the total cash collected from customers during 2022?
5. What was the accounts receivable turnover?

6. Brew Ca has an average payment period of 30 days, an average age of inventory of 20 days, and
a cash conversion cycle of 30 days. What is Brew Ca’s average collection period?

7. For the company of Mr. Hapal Moe, the average age of accounts receivable is 30 days, the average
age of accounts payable is 50 days, and the average age of inventory is 40 days. If Mr. Moe’s
annual sales are P900,000, what is the firm’s average accounts receivable balance? Assume a 360-
day year.

8. Cut Works expects sales of P20 million this year under its current credit policy. The present terms
are net/30, the days sales outstanding is 60 days, and the bad debt loss percentage is 5%. Since
Cut Works wants to improve its profitability, the treasurer has proposed that the credit period be
shortened to 15 days. This change will reduce expected sales by P1,500,000, but will also shorten
the DSO on the remaining sales to 30 days. Expected bad debt losses on the remaining sales will
fall to 3%. The variable cost percentage is 60% and the cost of capital is 15%. What is the increase
or decrease in bad debt losses if the change is made?
 9. Data on Schick Inc. for 2022 are shown below along with the days sales outstanding of the
benchmark firms. The firm’s new CFO believes that the company can reduce its receivable enough
to reduce its DSO to the benchmark’s average. If Schick Inc. decides to do it, by how much will be
the receivables increase or decrease? Assume a 360-day year.

10. Yoyot Company buys on terms of 2/10, net/30. It does not take discounts, and typically pays 60
days after the invoice date. Net purchases amount to P500,000 per year. What is the nominal
annual percentage cost of its non-free trade credit based on a 360-day year?

Straight Problems

1. Kat Arc is thinking of relaxing its credit standards to increase its declining sales. With the proposed
relaxation, sales are expected to increase by 20% from 20,000 units to 24,000 units in 2022. With
the expected increase in sales, the average collection period will also be longer from 60 days to
75 days. Bad debts are also expected to increase form 2% to 4% of sales. The sales price per unit
is P150 and the variable cost per unit is P112.50. If the firm’s return in equal-risk investments in
20%, determine the net advantage or disadvantage of relaxing the credit standard.

2. Electron’s age of inventory is 90 days, age of receivables is 60 days, and age of payment is 30 days.
If its sales for the period amount to P900,000, what is the investment in accounts receivable?
Assume 360 days in a year.

3. Clemenia Suites grants credit terms of 1/10, net/30 and projects a gross sales of P5,000,000 for
the next year. The credit manager estimates that 20% of the firm’s customers pay on then
discount date, 30% on the net due date. Assuming a uniform sales and a 360-dayh year, what is
the projected days sales outstanding (rounded to the nearest whole day)?

4. Beleyno Computer Parts Company sells to retailers on credit terms of net/90. Its annual credit
sales are P250 million and its accounts receivables average 20 days overdue. The firm’s variable
cost ratio is 80% of sales. Determine Beleyno’s average investment in receivables. Assume 360
days in a year.

5. Darna sells merchandise to retail appliance stores on credit terms of net/60. Its annual credit sales
are P200,000,000 spread evenly throughout the year and its accounts average 20 days overdue.
The firm’s variable cost ratio is 0.75. Determine Darna’s average investment in receivables.
Assume 360 days per year on all calculations.