EX 9-26 Accounts receivable turnover and days’ sales in receivables

Polo Ralph Lauren Corporation designs, markets, and distributes a variety of apparel, home decor, accessory, and fragrance products. The company’s products include such brands as Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren, Polo Jeans Co., and Chaps. Polo Ralph Lauren reported the following (in thousands):

                                                                            For the Period Ending
                                                                March 29, 2009     March 29, 2008
Net sales                                                      $5,018,900           $4,880,100
Accounts receivable                                        576,700               585,000

Assume that accounts receivable (in millions) were $511,900 at the beginning of the 2008 fiscal year.
a. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimal place.
b. Compute the days’ sales in receivables for 2009 and 2008. Round to one decimal place.
c. What conclusions can be drawn from these analyses regarding Ralph Lauren’s efficiency in collecting receivables?

Answer:
a. and b.
a. and b.  2009   2008    Net sales................................ $5,018,900  $4,880,100  Accounts receivable............. $576,700  $585,000  Average accts. receivable.... $580,850  $548,450   [($576,700 + $585,000)/2] [($585,000 + $511,900)/2]  
 Accts. receivable turnover... 8.6 8.9   ($5,018,900/$580,850) ($4,880,100/$548,450)   Average daily sales.............. $13,750.4 $13,370.1   ($5,018,900/365) ($4,880,100/365)  
 Days’ sales in receivables ... 42.2 41.0   ($580,850/$13,750.4) ($548,450/$13,370.1) 

c. The accounts receivable turnover indicates a decrease in the efficiency of collecting accounts receivable by decreasing from 8.9 to 8.6, an unfavorable trend. The days’ sales in receivables also indicates a decrease in the efficiency of collecting accounts receivable by increasing from 41.0 to 42.2, which is an unfavorable trend. These unfavorable trends are consistent with the economic downturn that occurred worldwide in 2008 and 2009. However, before reaching a final conclusion, the ratios should be compared with industry averages and similar firms. 

Popular posts from this blog

PR 9-2A Aging of receivables; estimating allowance for doubtful accounts

Image
Angler’s Dream Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Angler’s Dream prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2011: The following accounts were unintentionally omitted from the aging schedule: Customer                                            Due Date                        Balance  Antelope Sports & Flies                June 21, 2011                      $ 3,000  Big Hole Flies                               Aug. 30, 2011         ...
Read more

PR 10-5A Transactions for fixed assets, including sale

The following transactions, adjusting entries, and closing entries were completed by D. Hurd Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. 2010 Jan.  9. Purchased a used delivery truck for $30,000, paying cash. Mar. 17. Paid garage $400 for miscellaneous repairs to the truck. Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $6,000 for the truck. 2011 Jan.   2. Purchased a new truck for $48,000, paying cash. Aug   1. Sold the used truck for $12,500. (Record depreciation to date in 2011 for the truck.) Sept. 23. Paid garage $325 for miscellaneous repairs to the truck. Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $11,000 and an estimated life of fi ve years. 2012 July    1. Purchased a new truck for $52,000, paying cash. Oct.   ...
Read more

PR 9-1A Entries related to uncollectible accounts

Image
The following transactions were completed by Axiom Management Company during the current fiscal year ended December 31: Feb.  17. Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible. Apr.  11. Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account. July  6. Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets. Nov. 20. Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account. Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers, $6,700.          31. Based on an analysis of the $1,200,000 of accounts receivabl...
Read more