Leyton Lumber Company has sales of $8 million per year, all on credit terms calling for...

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Leyton Lumber Company has sales of $8 million per year, all oncredit terms calling for payment within 30 days, and its accountsreceivable are $1.6 million. Assume 365 days in year for yourcalculations.
What is Leyton's DSO? Round your answer to two decimalplaces.
What would DSO be if all customers paid on time? Round youranswer to two decimal places.
How much capital would be released if Leyton could take actionsthat led to on-time payments? Round your answer to the nearestcent. Write out your answer completely. For Example, 13.2 millionshould be entered as 13,200,000.

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3.8 Ratings (636 Votes)

Information provided:

Sales= $8 million per year

Accounts receivables= $1.6 million

1.Days of sales outstanding= 365/Receivables turnover

Receivables turnover= Annual sales/Average receivables

= $8,000,000/ $1,600,000

= 5

Days of sales outstanding= 365/ 5

= 73 days.

2.If all customers paid on time, the DSO will be 30 days.

3.If customers paid on time, the accounts receivables is:

= 30*$8,000,000/365

= $657,534.25.

Therefore, the cash freed up= $1,600,000 - $657,534.25

= $942,465.75.

In case of any query, kindly comment on the solution.

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Transcribed Image Text

Leyton Lumber Company has sales of $8 million per year, all oncredit terms calling for payment within 30 days, and its accountsreceivable are $1.6 million. Assume 365 days in year for yourcalculations.What is Leyton's DSO? Round your answer to two decimalplaces.What would DSO be if all customers paid on time? Round youranswer to two decimal places.How much capital would be released if Leyton could take actionsthat led to on-time payments? Round your answer to the nearestcent. Write out your answer completely. For Example, 13.2 millionshould be entered as 13,200,000.