Question

The following information is from the annual financial statements of Raheem Company. Net sales Year 3 $ 406,000 33,200 Year 2 $ 337,000 31,000 Year 1 $ 378,000 27,700 Accounts receivable, net (year-end) (1) Compute its accounts receivable turnover for Year 2 and Year 3. (2) Assuming its competitor has a turnover of 19.0, is Raheem performing better or worse at collecting receivables than its competitor? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute its accounts receivable turnover for Year 2 and Year 3. Choose Numerator: 1 Accounts Receivable Turnover 1 Accounts receivable turnover Year 2: 1 times Year 3: 1 times > Accounts Receivable Turnover Choose Denominator: < Required 1 = = = = Required 2

Answer 1

Raheem Company's accounts receivable turnover for Year 2 is 11.4787 times, and for Year 3, it is 12.6474 times. When compared to its competitor's turnover of 19.0, Raheem Company is performing worse in terms of collecting receivables.

Step-by-step explanation:

Accounts Receivable Turnover Calculation

To compute the accounts receivable turnover for Raheem Company for Year 2 and Year 3, we use the following formula: Accounts Receivable Turnover = Net Sales / Average Accounts Receivable.

For Year 2, the turnover is calculated as follows:

$337,000 (Net sales for Year 2) ÷ $29,350 (Average of Year 1 and Year 2 receivables: ($27,700 + $31,000) ÷ 2) = 11.4787 times.

For Year 3, the turnover is calculated as:

$406,000 (Net sales for Year 3) ÷ $32,100 (Average of Year 2 and Year 3 receivables: ($31,000 + $33,200) ÷ 2) = 12.6474 times.

Comparison to Competitor

Comparing Raheem's turnover to its competitor's turnover of 19.0, it appears that Raheem is performing worse in terms of collecting its receivables. Raheem's turnover for Year 3 is 12.6474, which is lower than the competitor's turnover of 19.0. This indicates Raheem takes longer to collect its receivables, or is less efficient in its collections, compared to the competitor.