Question

1. A+ Airplanes normally sells $125,000 of its product on credit each day, and it takes...

1. A+ Airplanes normally sells $125,000 of its product on credit each day, and it takes an average of 40 days to collect the credit sales. (a) What is the average accounts receivable that is reported on A+'s balance sheet? (b) What is the company's account receivable turnover?

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Answer #1

(a)

Sales per day = 125000

Sales for year 125000 * 365

Average collection period 40

Average accounts receivable formula = Total sales/365 * Average collection period

125000 * 365 /365 * 40

5000000

Alternatively, formula is = Per day sales * Average collection period

125000 * 40

5000000

So, Average accounts receivable is $5,000,000.

(b)

Accounts receivable turnover ratio = Sales / Average accounts receivables

sales = 125000*365= 45625000

Accounts receivable turnover ratio = 45625000/5000000

9.125

So, accounts receivable turnover ratio is 9.125.

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