Question

The following information was taken from Nash Inc.'s trial balances as of December 31, 2018, and December 31, 2019.

12/31/2019 12/31/2018
Accounts receivable $32,000 $39,000
Accounts payable 47,000 36,000
Sales 219,000 128,000
Sales returns 4,000 2,300
Retained earnings 47,000 16,000
Dividends 5,000 1,000
Net income 36,000 9,000

Required:

a. Calculate the net profit margin and accounts receivable turnover for 2011. (Mote: Round answers to two decimal places.)
b. How much does Nash make on each sales dollar?
c. How many days does the average receivable take to be paid (assuming all sales arc on account)?

Answer 1

1. Calculate the net profit margin and accounts receivable turnover for 2019

Net profit margin = Net income/Net sales

Net profit margin = 36,000/(219000-4000)

Net profit margin = 16.74%

A/R turnover = Sales/Average turnover

A/R turnover = (219000-4000)/((32000+39000)/2)

A/R turnover = 6.06

2. How much does Nash make on each sales dollar?

= 36,000 / (219000-4000)

= 36,000 / 215000

= $0.17

3. How many days does the average receivable take to be paid (assuming all sales arc on account)?

Days Sales Outstanding = Average account receivables*365 / Net credit sales

Days Sales Outstanding = [((32000+39000)/2)*365] / (219000-4000)

Days Sales Outstanding = 12957500/215000

Days Sales Outstanding = 60 days