Question

ShipIt Corporation reported the following rounded amounts (in millions): 2016 2015 Accounts Receivable $ 5,535 $ 5,240 Allowance for Doubtful Accounts (355 ) (360 ) Accounts Receivable, Net of Allowance $ 5,180 $ 4,880 Net Sales (assume all on credit) $ 43,500 $ 42,000 Required: Determine the receivables turnover ratio and days to collect for 2016. (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 1 decimal place.) Do the measures calculated in requirement 1 represent an improvement (or deterioration) in receivables turnover, compared to 2015 when the turnover was 9.7?

Answer 1

a. 8.65 times

b. 42 days

Step-by-step explanation:

The computation of Receivables turnover ratio and days to collect is shown below:-

a. Receivables turnover ratio = Net sales ÷ Average receivables

= $43,500 ÷ ($5,180 + $4,880) ÷ 2

= $43,500 ÷ ($10,060 ÷ 2)

= $43,500 ÷ $5,030

= 8.65 times

b. Days to collect = 365 ÷ Receivables turnover ratio

= 365 ÷ 8.65 times

= 42 days