Reference no: EM132518669

Accounts receivable

The following statement refers to a credit management policy. Select the best term to complete the sentence.

The conditions of the credit sale, including cash discounts and due dates, are indicated by the company's (a. terms of credit, b. collection policy, c. credit standards).

Consider the case of Wok Bar Co.:

• Wok Bar Co.'s CFO has decided to take a closer look at the company's credit policy. Wok Bar Co. has annual sales of $379.3 million, and it currently has an accounts receivable balance of $47.6 million. The first step in analyzing the firm's credit policy is to determine its days sales outstanding (DSO).

Fill in the blank.

Based on this information, Wok Bar Co.'s DSO is (a. 34.3 days, b. 36.6 days, c. 45.8 days, d. 32.1 days). (Note: Use 365 days as the length of a year in all calculations. Do not round intermediate calculations. Round your answer to one decimal place.)

Question 1: The average DSO for Wok Bar Co.'s industry is 51.2 days. Assuming that its sales stayed the same, what would be Wok Bar Co.'s receivables balance if it maintained the industry average DSO? (a. $47,885,326, b. $61,181,806, c. $53,205,918, d.$50,545,622) (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.)

Question 2: Wok Bar Co.'s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this will cause Wok Bar Co. to lose 6% of its sales revenue. What would Wok Bar Co.'s expected accounts receivables balance be if it decides to tighten its credit policy? (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.)

Option 1: $26,374,340

Option 2: $27,839,581

Option 3: $29,304,822

Option 4: $24,909,099