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Chapter 8: Q23RQ (page 465)
What does the accounts receivable turnover ratio measure, and how is it calculated?
The accounts receivable turnover ratio measures how usually the company can collect the amount of average accounts receivable in a year.
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Lovett Company reported the following selected items at March 31, 2018 (last year’s—2017—amounts also given as needed):
Accounts Payable \( 128,000 Accounts Receivable, net:
Cash 104,000 March 31, 2018 \) 108,000
Merchandise Inventory: March 31, 2017 68,000
March 31, 2018 116,000 Cost of Goods Sold 460,000
March 31, 2017 80,000 Short-term Investments 56,000
Net Credit Sales Revenue 1,168,000 Other Current Assets 48,000
Long-term Assets 168,000 Other Current Liabilities 72,000
Long-term Liabilities 52,000
14. Compute Lovett’s (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days’ sales in receivables as of
March 31, 2018.
Applying the direct write-off method to account for uncollectibles
Shawna Valley is an attorney in Los Angeles. Valley uses the direct write-off method to account for uncollectible receivables.
At April 30, 2018, Valley’s accounts receivable totaled \(19,000. During May, she earned revenue of \)22,000 on account and collected \(15,000 on account. She also wrote off uncollectible receivables of \)1,100 on May 31, 2018.
Requirements
1. Use the direct write-off method to journalize Valley’s write-off of the uncollectible receivables.
2. What is Valley’s balance of Accounts Receivable at May 31, 2018?
Question: Silver Clothiers reported the following selected items at April 30, 2018 (last year’s—2017—amounts also given as needed):
Accounts Payable | \( 328,000 | Accounts Receivable, net: | |
Cash | \) 573,720 | April 30, 2018 | \( 11,000 |
Merchandise Inventory: | April 30, 2017 | \) 165,000 | |
April 30, 2018 | \( 250,000 | Cost of Goods Sold | \) 1,200,000 |
April 30, 2017 | \( 210,000 | Short-term Investments | \) 148,000 |
Net Credit Sales Revenue | \( 3,212,000 | Other Current Assets | \) 100,000 |
Long-term Assets | \( 350,000 | Other Current Liabilities | \) 188,000 |
Long-term Liabilities | $ 130,000 |
Compute Silver’s (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days’ sales in receivables for the year ending April 30, 2018. Evaluate each ratio value as strong or weak. Silver sells on terms of net 30. (Round days’ sales in receivables to a whole number.)
Unique Media Sign Incorporated sells on account. Recently, Unique reported the following figures:
2018 | 2017 | |
Net Credit Sales | \( 594,920 | \)602,000 |
Net Receivables at end of year | 38,500 | 47,100 |
Requirements
1. Compute Unique’s days’ sales in receivables for 2018. (Round to the nearest day.)
2. Suppose Unique’s normal credit terms for a sale on account are 2/10, net 30. How well does Unique’s collection period compare to the company’s credit terms? Is this good or bad for Unique?
What is the difference between accounts receivable and notes receivable?
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