Question

Quasar, Inc. sells clothing, accessories, and personal care products for men and women through its retail stores. Quasar reported the following data for two recent years:

Year 2 Year 1
Sales $2,125,760 $2,188,175

Accounts receivable 193,450 186,150

Assume that accounts receivable were $215,350 at the beginning of Year 1.

a. Compute the accounts receivable turnover for Year 2 and Year 1. Round to one decimal place.

Year 2:

Year 1:

b. Compute the days' sales in receivables for Year 2 and Year 1. Round interim calculations and final answers to one decimal place. Use 365 days per year in your calculations.

Year 2: ___ days

Year 1: ___ days

Answer 1

Turnover ration: year 1. 10.73; year 2, 11.2

Days in sales receivables year 1: 34 days; year 2, 33.59 days

Step-by-step explanation:

A) The turnover ratio measures the efficiency of a company in collecting its debts. It is calculated using the formula below.

Turnover ratio = Credit Sales / Average Accounts Receivable

Where average account receivable equal to beginning receivable plus the ending receivable divide by two.

For this company, beginning inventory for year 1 is the same as ending receivable for 2.

Average inventory for year 1: = $215,350 + $193,450/2

=$408,800 / 2

=$204, 000

Turnover ratio = $2,188,175 / $204,000

=10.73

Turnover for year two

Average inventory = 193,450 + 186,150/ 2

=$189,800

Turnover ratio =$2,125,760 / $189,800

=11.2

b) Days in sales receivables calculate by dividing days in a year by the turnover ratio. In this case, one year has 365 days

days in sales in year 1= 365/10.73

=34 days

days in sales in year 2

=365/11.2

=32.589