Charming Paper Company sells to the 12 accounts listed here. Account Receivable Balance Outstanding Average Age of the Account Over the Last Year A $ 60,800 22 B 168,000 43 C 78,300 19 D 24,300 55 E 58,900 42 F 238,000 39 G 30,400 16 H 374,000 72 I 41,400 32 J 96,500 58 K 292,000 17 L 67,700 37 Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less, 80 percent for account balances between 31 and 40 days, and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan. The current prime rate is 15.5 percent, and Capital charges 4.5 percent over prime to Charming as its annual loan rate. a. Determine the maximum loan for which Charming Paper Company could qualify. b. Determine how much one month’s interest expense would be on the loan balance determined in part a. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Charming Paper Company sells to the 12 accounts listed here.
| Account | Receivable Balance Outstanding |
Average Age of the Account Over the Last Year |
||||
| A | $ | 60,800 | 22 | |||
| B | 168,000 | 43 | ||||
| C | 78,300 | 19 | ||||
| D | 24,300 | 55 | ||||
| E | 58,900 | 42 | ||||
| F | 238,000 | 39 | ||||
| G | 30,400 | 16 | ||||
| H | 374,000 | 72 | ||||
| I | 41,400 | 32 | ||||
| J | 96,500 | 58 | ||||
| K | 292,000 | 17 | ||||
| L | 67,700 | 37 | ||||
Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less, 80 percent for account balances between 31 and 40 days, and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan.
The current prime rate is 15.5 percent, and Capital charges 4.5 percent over prime to Charming as its annual loan rate.
a. Determine the maximum loan for which Charming Paper Company could qualify.
b. Determine how much one month’s interest expense would be on the loan balance determined in part a. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
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