Question

The following data are taken from the financial statements of Colby Company. 2017 2016 Accounts receivable (net), end of year $ 550,000 $ 540,000 Net sales on account 4,300,000 4,000,000 Terms for all sales are 1/10, n/45 Compute for each year the accounts receivable turnover. At the end of 2015, accounts receivable was $520,000. (Round answers to 1 decimal place, e.g. 12.5.) 2017 2016 Accounts receivable turnover times times LINK TO TEXT Compute for each year the average collection period. (Round answers to 1 decimal place, e.g. 12.5. Use 365 days for calculation.) 2017 2016 Average collection period days days

Answer 1

Average collection period for 2016= 48.3 days

Average collection period for 2017 = 46.3 days

Step-by-step explanation:

Colby Company

2017 2016

Accounts receivable (net), end of year $ 550,000 $ 540,000

Net sales on account 4,300,000 4,000,000

At the end of 2015, accounts receivable was $520,000.

Receivables turnover ratio= Net Sales / Average Accounts Receivable

Average Accounts Receivable= Net Receivables for one year + Net Receivables for other year

2016 Receivables turnover ratio= $4,000,000 / $ 540,000 + $520,000./2

Receivables turnover ratio= $4,000,000/$ 530,000

Receivables turnover ratio= 7.547= 7.55

This indicates that average accounts receivable balance is converted into cash 7.55 times during the year 2016.

2017 Receivables turnover ratio= $4,300,000 / $ 540,000 + $550,000./2

Receivables turnover ratio= $4,300,000/$ 545,000

Receivables turnover ratio= 7.889= 7.89

This indicates that net accounts receivable balance is converted into cash

7.89 times during the year 2017.

Average collection period for year 2016 = 365/ Receivables turnover ratio

Average collection period for 2016= 365/7.55= 48.34= 48.3 days

Average collection period for 2017 = 365/Receivables turnover ratio

Average collection period for 2017 = 365/ 7.89= 46.26= 46.3 days

This indicates that accounts receivable are collected in almost 48 days in 2016 and 46 days in 2017