Accounts Receivable, ACP Credit Policy

19-3. Fitzgerald Company has credit terms of 2/15, n60. The historical payment patterns of its customers are as follows:

40 percent of customers pay in 15 days.

57 percent of customers pay in 60 days.

3 percent of customers pay in 100 days.

Annual sales are $730,000. Assume there are 365 days in a year.

a. Calculate the average collection period (ACP).

b. What is the accounts receivable (AR) assuming all goods are sold on credit?

Accounts Receivable, ACP Credit Policy

19-4. If Fitzgerald in problem 19-3 decides to adopt more stringent credit terms of 2/10, n30, sales are expected to drop by 10 percent, but the following improved payment pattern of its customers is expected:

40 percent of customers will pay in 10 days.

58 percent of customers will pay in 30 days.

2 percent of customers will pay in 100 days.

Calculate the new average collection period (ACP) and accounts receivable (AR) assuming all goods are sold on credit.