Question

ASSETS Cash $ 20,000 Accounts receivable 80,000 Inventory 50,000 Net plant and equipment 250,000 Total assets $ 400,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable $ 40,000 Accrued expenses 60,000 Long-term debt 130,000 Common stock 100,000 Paid-in capital 10,000 Retained earnings 60,000 Total liabilities and stockholders’ equity $ 400,000 TEW COMPANY Income Statement For the year ended December 31 Sales (all on credit) $ 500,000 Cost of goods sold 200,000 Gross profit $ 300,000 Sales and administrative expenses 20,000 Fixed lease expenses 10,000 Depreciation 40,000 Operating profit $ 230,000 Interest expense 20,000 Profit before taxes $ 210,000 Taxes (35%) 73,500 Net income $ 136,500 Refer to the tables above. The firm's receivable turnover is ____. Assume a 360-day calendar.

Answer 1

Answer:

The firm's receivable turnover is 20 times

Explanation:

The computation is shown below:

Accounts receivable turnover ratio  = (Credit sales ÷ average accounts) receivable

where,  

Average accounts receivable = (Opening balance of Accounts receivable + ending balance of Accounts receivable) ÷ 2

= ($0 + $50,000) ÷ 2

= $25,000

And, the net credit sale is $500,000

Now put these values to the above formula  

So, the answer would be equal to  

= ($500,000 ÷ $25,000)

= 20 times

And, the average collection period in days = Total number of days in a year ÷ accounts receivable turnover ratio

= 360 days ÷ 20

= 18 days