Question

Broadway Inc. recognized credit sales of $190,000 for the current year ended December 31. The net accounts receivable balances at December 31 of the prior year and at December 31 of the current year were $18,880 and $20,900, respectively. Compute Broadway’s (1) receivable turnover ratio and (2) average days to collect receivables, for the current year.

Answer 1

Broadway Inc.'s receivable turnover ratio is approximately 9.55 for the current year, and the average days to collect receivables is about 38.22 days.

Step-by-step explanation:

To compute Broadway Inc.'s receivable turnover ratio for the current year, we use the formula: Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable. The net credit sales for the year are $190,000. The average accounts receivable is calculated by taking the sum of the beginning and ending accounts receivable balances and dividing by 2, which is ($18,880 + $20,900) / 2 = $19,890. Therefore, the Receivable Turnover Ratio is $190,000 / $19,890 ≈ 9.55.

To compute the average days to collect receivables, we take the number of days in a year, which is 365, and divide it by the receivable turnover ratio. Thus, Average Days to Collect = 365 / Receivable Turnover Ratio. For Broadway Inc., this would be 365 / 9.55 ≈ 38.22 days.

The calculations can be summarized as follows:

1. Receivable Turnover Ratio = $190,000 / $19,890 ≈ 9.55
2. Average Days to Collect = 365 / 9.55 ≈ 38.22 days