Question

The following data are taken from the financial statements of Crane Company.

2022 2021 Accounts receivable (net), end of year $ 567,900 $ 555,000 Net sales on account 4,831,000 4,179,000 Terms for all sales are 1/10, n/45
1) Compute for each year the accounts receivable turnover. At the end of 2015, accounts receivable was $511,500. (Round answers to 1 decimal place, e.g. 12.5.)
2) Compute for each year the average collection period. (Round answers to 1 decimal place, e.g. 12.5. Use 365 days for calculation.)

Answer 1

Answer and Explanation:

The computation is shown below;

(1)

As we know that

The receivables turnover = Net credit sales ÷ Average account receivable

For the year 2017

Receivables turnover = $4,831,000 ÷ $561,450 = 8.60 times

for the year 2016:

Receivables turnover = $4,179,000 ÷ $533,250 = 7.84 times

Average net AR = (Beginning AR + Ending AR) ÷ 2

2017 = ($567,900 + $555,000) ÷ 2 = $561,450

2016 = ($555,000 + $511,500) ÷ 2 = $533,250

(2)

The average collection period = 365 days ÷ Receivables turnover

For 2017:

Average collection period = 365 ÷ 8.60 = 42.44 days

For 2016

Average collection period = 365 ÷ 7.84 = 46.56 days