Question

Below are amounts (in millions) from three companies' annual reports. Beginning Accounts Receivable Ending Accounts Receivable Net Sales WalCo $1,735 $2,682 $314,427 TarMart 5,766 6,294 59,878 CostGet 549 585 60,963 Required: 1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. (Do not round intermediate calculations. Enter your answers in millions. Round your "Average accounts receivable" and "Receivables turnover ratio" answers to one decimal place.)

Answer 1

Answer:

(1) 142.37;  2.56 days

(2) 9.93; 36.76 days

(3) 107.52; 3.39 days

Explanation:

(1) For WalCo,

Average accounts receivables:

= (Opening AR + Closing AR) ÷ 2

= ($1,735 + $2,682) ÷ 2

= 2,208.5

Receivables turnover ratio:

= Net Sales ÷ Average accounts receivable

= $314,427 ÷ 2,208.5

= 142.37

Average collection period:

= 365 ÷ Receivables turnover ratio

= 365 ÷ 142.37

= 2.56 days

(2) For TarMart,

Average accounts receivables:

= (Opening AR + Closing AR) ÷ 2

= ($5,766 + $6,294) ÷ 2

= 6,030

Receivables turnover ratio:

= Net Sales ÷ Average accounts receivable

= $59,878 ÷ 6,030

= 9.93

Average collection period:

= 365 ÷ Receivables turnover ratio

= 365 ÷ 9.93

= 36.76 days

(3)  For CostGet,

Average accounts receivables:

= (Opening AR + Closing AR) ÷ 2

= ($549 + $585) ÷ 2

= 567

Receivables turnover ratio:

= Net Sales ÷ Average accounts receivable

= $60,963 ÷ 567

= 107.52

Average collection period:

= 365 ÷ Receivables turnover ratio

= 365 ÷ 107.52

= 3.39 days