Question

Lithgow Corp. reported net credit sales of $3,500,000 for 2014. The beginning accounts receivable balance for the year was $370,000 and the ending accounts receivable balance was $410,000. Rounding to 2 decimal places, what is Lithgow's accounts receivable turnover rate for 2014?

Answer 1

Lithgow Corp's accounts receivable turnover rate for the year 2014 is calculated by dividing their net credit sales of $3,500,000 by their average accounts receivable of $390,000, resulting in a turnover rate of 8.97 when rounded to two decimal places.

Step-by-step explanation:

The question asks about calculating the accounts receivable turnover rate for Lithgow Corp. for the year 2014. This financial metric is used to assess how efficiently a company collects on its credit sales.

To calculate the accounts receivable turnover rate, we use the formula:

Accounts Receivable Turnover Rate = Net Credit Sales / Average Accounts Receivable

For Lithgow Corp., the net credit sales were $3,500,000, and the average accounts receivable is the sum of the beginning and ending accounts receivable balances divided by two, which is ($370,000 + $410,000) / 2 = $390,000. Therefore, Lithgow's accounts receivable turnover rate for 2014 is:

Accounts Receivable Turnover Rate = $3,500,000 / $390,000 = 8.97 (rounded to two decimal places)