The Samson Ltd had sales of $60,000 in 2022, and a cost of goods sold of...

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The Samson Ltd had sales of $60,000 in 2022, and a cost of goods sold of $8,000. The firm's supplier offers trade credit terms of 3/5, net 20. Assume 365 days in a year. All figures are in thousands. A simplified balance sheet for the firm appears below: The Samson Ltd Accounts Balance sheet as at 31 December 2022 (in $ thousands) Assets Cash Liabilities and shareholders' equity $1,000 1,000 $2,000 Accounts payable 3,000 Notes payable Receivable Inventory 1,500 Accruals 1,220 Total current assets $6,500 Total current liabilities $3,220 Net plant, property, $8,500 Long-term debt $2,750 & equipment Total Assets $15,000 Total liabilities Issued equity Total liabilities & shareholders' equity $5,970 $9,030 $15,000 Required: a. Calculate the effective annual cost of trade credit if Samson decided to forgo the trade discount. [2 marks] b. Explain in words, how does Samson decide whether to take advantage of the trade discount and pay within the first 5 days, or to forgo the trade discount and pay after the discount window? No calculation is needed. [1 mark] c. Is Samson Ltd managing its accounts payable well? Explain. [2 marks] Hint: You need to first calculate the accounts payable days, then compare to the credit term provided by the supplier. The Samson Ltd had sales of $60,000 in 2022, and a cost of goods sold of $8,000. The firm's supplier offers trade credit terms of 3/5, net 20. Assume 365 days in a year. All figures are in thousands. A simplified balance sheet for the firm appears below: The Samson Ltd Accounts Balance sheet as at 31 December 2022 (in $ thousands) Assets Cash Liabilities and shareholders' equity $1,000 1,000 $2,000 Accounts payable 3,000 Notes payable Receivable Inventory 1,500 Accruals 1,220 Total current assets $6,500 Total current liabilities $3,220 Net plant, property, $8,500 Long-term debt $2,750 & equipment Total Assets $15,000 Total liabilities Issued equity Total liabilities & shareholders' equity $5,970 $9,030 $15,000 Required: a. Calculate the effective annual cost of trade credit if Samson decided to forgo the trade discount. [2 marks] b. Explain in words, how does Samson decide whether to take advantage of the trade discount and pay within the first 5 days, or to forgo the trade discount and pay after the discount window? No calculation is needed. [1 mark] c. Is Samson Ltd managing its accounts payable well? Explain. [2 marks] Hint: You need to first calculate the accounts payable days, then compare to the credit term provided by the supplier.

Answer rating: 100% (QA)

Samson Ltd Trade Credit Analysis a Effective Annual Cost of Trade Credit Here we need to calculate the cost Samson would incur if they forgo the discount and pay after 20 days Steps Calculate the disc... View the full answer