Question

The general manager of Liberty Inc. issued a challenge to his managers. He wanted to decrease the collection period for accounts receivable and the holding period for inventory. Liberty is a wholesale distributor of low cost items that it imports from producers in Asia. Its customers include retailers in Ontario and Quebec. For the year ended December 31, 2017, the collection period for receivables was 48.2 days and the holding period inventory was 145 days. Liberty normally provides 30 days to its customers to pay its bills. Relevant financial statement information is as follows:

Liberty Inc.
Financial Statement Information
December 31, 2017
Cash............ $ 65,000
Average accounts receivable..... 375,000
Average inventory........ 610,000
Revenue.......... 2,839,730
Cost of sales.......... 1,535,517

Required:
Suppose that Liberty’s managers were able to decrease the collection period for receivables to 42 days and the holding period for inventory to 130 days. What would have been the impact on the company’s cash on December 31, 2017? (Determine the average amount of inventory and accounts receivable that would be needed in 2017 to achieve the targets.) What would be some methods Liberty could use to achieve the targets set by the general manager?



$1.99
Sales0
Views24
Comments0
  • CreatedFebruary 26, 2015
  • Files Included
Post your question
5000