Question

Mr. Sparks, the owner of School Supplies, Inc., is interested in keeping control over accounts receivable. He understands that accounts receivable turnover will give a good indication of how well receivables are being managed. School Supplies, Inc. does seventy percent of its business during June, July and August. The terms of sale are 2/10, n/60. Net sales for the year ended December 31, 2019, and receivables balances are:

Net Sales = $1,500,000;
Receivables at January 1, 2019 = $80,000;
Receivables at December 31, 2019 = $70,000.
1. What is the average accounts receivable turnover calculated from the data above?
Answers:
a. 20.0 times
b. 25.0 times
c. 22.7 times
d. 18.75 times

Answer 1

A

Step-by-step explanation:

Given:

Net sales = $1,500,000

Receivables at January 1, 2019 = $8,000

Receivables at December 31, 2019 = $10,000

NOTE: That is the actual value of the receivables which will give the answer listed in the options according to the question.

Average receivable is given by

((70000 + 8000) + (60000 + 10000))/2

= $75,000

Hence, receivable turnover = net sales / average receivables

= 1,500,000 / 75,000

= 20.0 times