Question

Analyzing Allowance for Doubtful Accounts, Receivables Turnover Ratio, and Days to Collect [LO 8-4]Coca-Cola and PepsiCo are two of the largest and most successful beverage companies in the world in terms of the products that they sell and their receivables management practices. To evaluate their ability to collect on credit sales, consider the following information reported in their 2010, 2009, and 2008 annual reports (amounts in millions).Coca-ColaPepsiCo Fiscal Year Ended: 2010 2009 2008 2010 2009 2008 Net Sales $ 35,119 $ 30,990 $ 31,944 $ 57,838 $ 43,232 $ 43,251 Accounts Receivable 4,478 3,813 3,141 6,467 4,714 3,784 Allowance for Doubtful Accounts 48 55 51 144 90 70 Accounts Receivable, Net of Allowance 4,430 3,758 3,090 6,323 4,624 3,714 Required:1. Calculate the receivables turnover ratios and days to collect for Coca-Cola and PepsiCo for 2010 and 2009. (Use 365 days in a year. Do not round intermediate calculations on Accounts Receivable Turnover Ratio. Round your final answers to 1 decimal place. Use final rounded answers from Accounts Receivable Turnover Ratio for Days to Collect ratio calculation.)

Answer 1

Answer:

COCA-COLA A/R TO     days to collect

2010   8.578163166      43

2009  9.050817757      40

PEPSICO  A/R TO     days to collect

2010  10.56401826      35

2009 10.36987287      35

Explanation:

The receivalbes turnover formula is as follows:

$\frac{Sales}{Average Receivables } = ReceivablesTurnover$

​where:

$Average Receivables=(Beginning A/R+ Ending A/R)/2$

It represt the times during the year the accounts receivables were collected

The days to collect formula: we divide the days during a year over the turnover to know the days on average it takes to collect from the customers.

$\frac{365}{Receivable TO} = Days to collect$

Coca-Cola 2010:

Sales     $ 35,119

beginning  $  3,758

ending    $  4,430

$Average Receivables=3758 + 4430)/2$

Average Receivables: 4094

$\frac{35119}{4094} = Receivables Turnover$

Receivables TO 8.578163166

$\frac{365}{8.57816316560821} = Days to collect$

Days on Inventory 43

Coca-Cola 2009:

Sales 30,990

beginning 3,090

ending 3,758

Average Receivables: 3424

Receivables TO 9.050817757

Days to collect 40

PEPSICO 2010:

Sales 57,838

beginning 4,624

ending 6,326

$Average receivables=4624 + 6326)/2$

average receivables: 5475

$\frac{57838}{5475} = receivablesTurnover$

receivables TO 10.56401826

Days to collect 35

PEPSICO 2009:

Sales 43,232

beginning 3,714

ending 4,624

$Average receivables=3714 + 4624)/2$

average receivables: 4169

$\frac{43232}{4169} = receivablesTurnover$

receivablesTO 10.36987287

$\frac{365}{10.3698728711921} = Days to collect$

Days on Inventory 35