Unformatted text preview: stomer has a history of paying within 45 days, which accounts
will be acceptable? What is the total dollar amount of accounts receivable
collateral? (Note: Accounts receivable that have an average age greater than
the customer’s average payment period are also excluded.)
b. In addition to the conditions in part a, the bank recognizes that 5% of credit
sales will be lost to returns and allowances. Also, the bank will lend only CHAPTER 15 Current Liabilities Management 663 80% of the acceptable collateral (after adjusting for returns and allowances).
What level of funds would be made available through this lending source?
LG5 15–15 Accounts receivable as collateral Springer Products wishes to borrow $80,000
from a local bank using its accounts receivable to secure the loan. The bank’s
policy is to accept as collateral any accounts that are normally paid within 30
days of the end of the credit period, as long as the average age of the account is
not greater than the customer’s average payment period. Springer’s accounts
receivable, their average ages, and the average payment period for each customer
are shown in the following table. The company extends terms of net 30 days. Customer Account
receivable Average age
of account Average payment
period of customer A $20,000 10 days 40 days B 6,000 40 35 C 22,000 62 50 D 11,000 68 65 E 2,000 14 30 F 12,000 38 50 G 27,000 55 60 H 19,000 20 35 a. Calculate the dollar amount of acceptable accounts receivable collateral held
by Springer Products.
b. The bank reduces collateral by 10% for returns and allowances. What is the
level of acceptable collateral under this condition?
c. The bank will advance 75% against the firm’s acceptable collateral (after
adjusting for returns and allowances). What amount can Springer borrow
against these accounts?
LG3 LG5 15–16 Accounts receivable as collateral, cost of borrowing Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen
eight accounts totaling $13...
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