Cannon Company Has Enjoyed a Rapid Increase in Sales in Recent

question 75

Multiple Choice

Cannon Company has enjoyed a rapid increase in sales in recent years, following a decision to sell on credit. However, the firm has noticed a recent increase in its collection period. Last year, total sales were $1 million, and $250,000 of these sales were on credit. During the year, the accounts receivable account averaged $41,096. It is expected that sales will increase in the forthcoming year by 50 percent, and, while credit sales should continue to be the same proportion of total sales, it is expected that the days sales outstanding will also increase by 50 percent (assume a 365-day year) . If the resulting increase in accounts receivable must be financed by external funds, how much external funding will Cannon need?

• A) $ 41,664
• B) $ 51,370
• C) $ 47,359
• D) $106,471
• E) $ 93,750

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Definitions:

Equity Securities

Financial instruments representing ownership in a corporation, entity, or assets, such as stocks.

Short Period

A brief duration of time, particularly in accounting or financial contexts, often referring to less than one fiscal year.

Designated

Usually refers to something that has been officially assigned a particular status, role, or purpose.

Bond Investments

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental.