The AR Company had sales of $5 million in 1991. It is estimated that 80% of all sales are on credit.

a. If the balance in accounts receivable at the end of 1991 was $500,000 and $750 million, how long did it take AR’s customers to pay?

b. Suppose AR extends credit to customers on the basis of 2/10, net 30. How does the actual time it takes customers to pay to compare with these credit terms if the accounts receivable balance is $500,000? if the accounts receivable balance is $750?

c. Critique the use of the number of days credit to evaluate AR’s collections.