Question

Following are the average accounts receivable and net sales reported recently by two large bever age companies (dollar amounts are stated in millions):
Average accounts receivable Net sales

Molson Coors Brewing Co................. $720 $8,320
Anheuser-Busch Companies, Inc........ 900 17,400

a. Compute the accounts receivable turnover rate for each company (round your results to one decimal place).
b. Compute the average number of days that it takes for each company to collect its accounts receivable (round your results to the nearest whole day).
c. Based upon your computations in a and b, which company’s accounts receivable appear to be most liquid? Defend your answer.

Answer 1

Answer:

A)   Accounts receivable turnover ratio = Net credit sales / Average accounts receivable

The following table shows the accounts receivable turnover ratio of MCB and ABI:

Particulars                                                  MCB          ABI

Net sales                                                 $8320     $17400

Average Accounts Receivable                 $720      $900

Accounts Receivable Turnover rate            11.5                19.3

B)  

Day's sale outstanding  = Accounts receivable / Total credit sales  × 365

The following table shows the days sale outstanding of MCB and ABI:

Particulars                                                    MCB             ABI

Net sales                                                    $8,320           $17,400

Average Accounts Receivable                    $720            $900

Day's sale outstanding                               31.58                 18.88

Explanation: