Question

Suppose the 2017 financial statements of 3M Company report net sales of $21.7 billion. Accounts receivable (net) are $3.40 billion at the beginning of the year and $3.42 billion at the end of the year.

1. Compute 3M’s receivable turnover.
2. Compute 3M’s average collection period for accounts receivable in days.

Answer 1

A.Receivable turnover 6.36

B. Average collection period 57.38

Step-by-step explanation:

A. Computation of 3M Company’s receivable turnover

Using this formula

Receivable turnover= Net annual credit sale / (beginning accounts receivable+ending accounts receivable)/2

Let plug in the formula

Receivable turnover=21.7/ ((3.40 +3.42)/2)

Receivable turnover= 21.7/(6.82/2)

Receivable turnover=21.7/3.41

Receivable turnover=6.36

B. Computation of 3M Company’s average collection period for accounts receivable in days

Using this formula

Average collection period = Number of days in a year/Receivable Turnover

Let plug in the formula

Average collection period=365 /6.36

Average collection period= 57.38

Therefore Receivable turnover will be 6.36 and the Average collection period will be 57.38.