Question

Faldo Corp sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $325,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit Period = Days early or late, and use a 365-day year when calculating the DSO. A positive answer indicates late payments, while a negative answer indicates early payments.a. 21.27b. 22.38c. 23.50d. 24.68e. 25.91

Answer 1

Answer:

b. 22.38

Explanation:

The credit period to pay for merchandise is 45 days, sales for last year = $325,000, therefore sales/day (daily sales) = $325,000/365 = $890.41

Year-end receivables = $60,000

Company DSO = Year-end receivables/ daily sales = $60000/$890.41 = 67.38

The difference between the Company DSO and credit period determines if the payment is early or late. A positive answer indicates late payments, while a negative answer indicates early payments.

Therefore, Company DSO - credit period = 67.38 - 45 = 22.38

Since the difference is positive, it is a late payment