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4)

ACCOUNTS PAYABLE

A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The company purchases the inventory under the credit terms of 2/15, net 40. APP always takes the discount but takes the full 15 days to pay its bills. What is the average accounts payable for APP?

Net purchase price of inventory

Credit terms = 2/15, net 40

5)

RECEIVABLES INVESTMENT

Snider Industries sells on terms of 2/10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchases.

a)

What is the DSO?

DSO =

b)

What is the average amount of recievables?

Sales per day = Sales / 365

Average receivables = Sales per day x DSO

c)

What would happen to average receivables if Snider toughened its collection policy

with the result that all non-discount customers paid on the 45th day?

DSO =

Sales per day = Sales / 365

Average receivables = Sales per day x DSO

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