PE 9-6A Accounts receivable turnover and number of days’ sales in receivables

Financial statement data for years ending December 31 for Blum Company are shown below.
                                               2012                           2011
Net sales                         $2,430,000                  $1,920,000
Accounts receivable:
 Beginning of year            180,000                        120,000
 End of year                      225,000                        180,000

a. Determine the accounts receivable turnover for 2012 and 2011.
b. Determine the number of days’ sales in receivables for 2012 and 2011. Round to one
decimal place.
c. Does the change in accounts receivable turnover and the number of days’ sales in
receivables from 2011 to 2012 indicate a favorable or an unfavorable trend?

Answer:
a. Accounts Receivable  Turnover   2012   2011   Net sales............................... $2,430,000 $1,920,000  Accounts receivable:   Beginning of year............ $180,000 $120,000   End of year....................... $225,000 $180,000   Average accts. receivable... $202,500 $150,000  [($180,000 + $225,000) ÷ 2]  [($120,000 + $180,000) ÷ 2]   Accts. receivable turnover  12.0 12.8   ($2,430,000 ÷ $202,500) ($1,920,000÷ $150,000)  
b. Number of Days’ Sales  in Receivables  2012   2011   Net sales............................... $2,430,000 $1,920,000  Average daily sales............. $6,657.5 $5,260.3  ($2,430,000 ÷ 365 days) ($1,920,000 ÷ 365 days)   Average accts. receivable... $202,500 $150,000  [($180,000 + $225,000) ÷ 2] [($120,000 + $180,000) ÷ 2]   Number of days’ sales  in receivables................... 30.4 days 28.5 days  ($202,500 ÷ $6,657.5) ($150,000 ÷ $5,260.3) 
c. The decrease in the accounts receivable turnover from 12.8 to 12.0 and the increase in the number of days’ sales in receivables from 28.5 days to 30.4 days indicate unfavorable trends in the efficiency of collecting receivables.

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