Question

Given the following data for 20Y1, select the correctly calculated financial ratio. Accounts Receivable on 1/1/20Y1...

Given the following data for 20Y1, select the correctly calculated financial ratio.

Accounts Receivable on 1/1/20Y1 $274,000

Accounts Receivable on 12/31/20Y1

1. $240,000 Inventory on 1/1/20Y1

2. $70,000 Inventory on 12/31/20Y1 $90,000

3. Net Credit Sales for 20Y1 $2,100,000

4. Cost of Goods Sold for 20Y1 $1,500,000

Accounts Receivable turns over 8.75 times per year.

The average collection period of accounts receivable is every 41 days.

Inventory is held an average of 38 days before it is sold. I

nventory turns over 18.75 times per year.

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Answer #1

Solution

correct answer is Inventory turns over 18.75 times per year.

CALCULATION

1) account recvable turnover ratio = net sales / average debtors

average debtors= (274000+240000) / 2 = 257000

=2,100,000 / 257000

= 8.17

2) average collection period =365 / account recvable turnover ratio

= 365 / 8.17

= 44.67 days

3) Inventory turnover ratio = COGS / average inventory

average inventory = (70000+90000) / 2 = 80000

= 1,500,000 / 80000

= 18.75

4) average invntry period = 365 / inventry turover ratio = 365 / 18.75 = 19.46

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