Question

The following information is taken from Reagan Company's December 31 balance sheet: Cash and cash equivalents $ 9,119 Accounts receivable 73,922 Merchandise inventories 63,862 Prepaid expenses 4,800 Accounts payable $ 15,650 Notes payable 90,138 Other current liabilities 10,200 If net sales for the current year were $608,000, the firm's days' sales uncollected for the year is: (Use 365 days a year.)

Answer 1

Answer:

40 days.

Explanation:

In the absence of the information about opening receivables, the closing figure is assumed to be the average accounts receivables,

Hence,

Debtors Turnover Ratio for Reagan:

= Sales ÷ Average Accounts Receivables

= $608,000 ÷ $73,922

= 8.22 times

Assuming that the number of days in a year as 365,

the firm's days sales uncollected for the year works out to:

= 365 days ÷ Debtors Turnover Ratio

= 365 ÷ 8.22

= 40.40 or 40 days.