Question

elected data of Islander Company follow: As of December 31, Balance Sheet Data 2017 2016 Accounts receivable $ 500,000 $ 470,000 Allowance for doubtful accounts (25,000 ) (20,000 ) Net accounts receivable 475,000 450,000 Inventories—lower of cost or market 600,000 550,000 Year Ended December 31, Income Statement Data 2017 2016 Net credit sales $ 2,500,000 $ 2,200,000 Net cash sales 500,000 400,000 Net sales 3,000,000 2,600,000 Cost of goods sold 2,000,000 1,800,000 Selling, general, and administrative expenses 300,000 270,000 Other 50,000 30,000 Total operating expenses 2,350,000 2,100,000 Required: What is the accounts receivable turnover for 2017? What is the inventory turnover for 2017?

Answer 1

Answer:

(a) 5.41 times

(b) 3.48 times

Explanation:

(a) Accounts receivable turnover for 2017:

$=\frac{Net\ Credit\ Sales}{Average\ Accounts\ Receivables}$

$=\frac{2,500,000}{462,500}$

      = 5.41 times

Working:

$Average\ Accounts\ Receivables=\frac{Sum\ of\ net\ accounts\ receivable\ in\ 2017\ and\ 2016}{2}$

$Average\ Accounts\ Receivables=\frac{475,000+450,000}{2}$

                                                             = 462,500

(b) Inventory turnover for 2017:

$=\frac{cost\ of\ goods\ sold}{Average\ Inventory}$

$=\frac{2,000,000}{575,000}$

      = 3.48 times

Working:

$Average\ Inventory=\frac{Sum\ of\ inventories\ in\ 2017\ and\ 2016}{2}$

$Average\ Accounts\ Receivables=\frac{600,000+550,000}{2}$

                                                             = 575,000