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. 25.91B

Answer 1

22.38 days

Step-by-step explanation:

Given the following:

Sales last year(credit sales) = 325000

Year-end receivables = 60000

To calculate the Days sales outstanding

Accounts receivable turnover ratio = Credit sales ÷ average accounts receivable

= (325,000 ÷ 60,000)

= 5.4166666667

Therefore,

(Number of days in year ÷ accounts receivable turnover ratio)

(365 ÷ 5.4166666667) =67.34

Days sales outstanding = 67.38461538days

Credit period = 45days

Difference = DSO - Credit period

Difference = (67.38461538 - 45) days =22.3846153days

=22.38 days