Question

Fess Hardware Store had net credit sales of $8,500,000 and cost of goods sold of $5,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $600,000 and $760,000, respectively. The accounts receivable turnover was a. 7.4 times. b. 5.9 times. c. 11.2 times. d. 12.5 times.

Answer 1

Answer:

d. 12.5 times.

Explanation:

The computation of the accounts receivable turnover ratio is shown below:

Account receivable turnover ratio = Net credit sales ÷ Average accounts receivable  

where,  

Net credit sales is $8,500,000

And, the Average accounts receivable would be

= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2

= ($600,000 + $760,000) ÷ 2

= $680,000

So, the accounts receivable turnover ratio would be

= $8,500,000 ÷ $680,000

= 12.5 times

We simply applied the above formula