Question

Below are some financial data for Fawnsworth Industries' current year.

Net sales on account during year
$500,000
Cost of merchandise sold during year
300,000
Accounts receivable, beginning of year
45,000
Accounts receivable, end of year
35,000
Inventory, beginning of year
90,000
Inventory, end of year
110,000
Based on this information, what is the accounts receivable turnover for the current period?

a.
10.0 times

b.
12.5 times

c.
11.1 times

d.
14.3 times

Answer 1

The accounts receivable turnover for Fawnsworth Industries is b. 12.5 times based on the provided financial data.

Step-by-step explanation:

The accounts receivable turnover is a financial ratio that measures how efficiently a company collects its outstanding accounts receivable during a period of time. It is calculated by dividing net sales on account by the average accounts receivable balance. The formula for accounts receivable turnover is: accounts receivable turnover = net sales on account / average accounts receivable.

In this case, the net sales on account are $500,000 and the average accounts receivable is calculated by adding the beginning and ending accounts receivable and dividing by 2, which gives us ($45,000 + $35,000) / 2 = $40,000. Therefore, the accounts receivable turnover for Fawnsworth Industries is $500,000 / $40,000 = 12.5 times.

Therefore, the correct option is b.12.5 times.