Final answer:
The Receivables Turnover Ratio for Elk Corporation is calculated by subtracting sales returns and allowances from total sales to get net sales, and then dividing by the average net accounts receivable. After computing the necessary figures, Elk Corporation's Receivables Turnover Ratio is found to be 20.2, implying its receivables are collected approximately 20.2 times per year.
Step-by-step explanation:
The Receivables Turnover Ratio is a financial metric used in business to assess the efficiency of a company's credit policies and its ability to collect debts from customers. To calculate the Receivables Turnover Ratio, you typically subtract the sales returns and allowances from the total sales to get the net sales, and then divide this figure by the average accounts receivable during the period.
For the Elk Corporation, the formula would be as follows:
- Total Sales: $2,580,000
- Beginning Net Accounts Receivable: $96,000
- Ending Net Accounts Receivable: $139,000
- Sales Returns and Allowances: $206,000
First, we calculate net sales:
Net Sales = Total Sales - Sales Returns and Allowances
Net Sales = $2,580,000 - $206,000
Net Sales = $2,374,000
Next, we find the average net accounts receivable:
Average Net Accounts Receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) / 2
Average Net Accounts Receivable = ($96,000 + $139,000) / 2
Average Net Accounts Receivable = $117,500
Now, we can calculate the Receivables Turnover Ratio:
Receivables Turnover Ratio = Net Sales / Average Net Accounts Receivable
Receivables Turnover Ratio = $2,374,000 / $117,500
Receivables Turnover Ratio = 20.2
The Receivables Turnover Ratio for Elk Corporation is 20.2, indicating that the company collects its accounts receivable about 20.2 times throughout the year.