Hart designs,manufactures,and markets toys in domestic and international markets.Sales during 2010 totaled $4,022 million.Accounts receivable totaled $655 million at the beginning of 2010 and $612 million at the end of 2010.
Required: a.Use the average balance to compute the accounts receivable turnover ratio for Hart for 2010.
b.Hart generated a compound annual sales growth rate of 13.0 percent over the past two years.Assume that Hart's sales will continue to grow at that rate each year for Year +1 through Year +5 and that the accounts receivable turnover ratio each year will equal the ratio computed in requirement a.for 2010.Project the amount of accounts receivable at year-end through Year +5 based on the accounts receivable turnover computed in requirement a.Also compute the percentage change in accounts receivable between each of the year-ends through Year +5.
c.Does the pattern of growth in your projections of Hart's accounts receivable seem
reasonable considering the assumptions of smooth growth in sales and steady turnover? Explain.
d.The changes in accounts receivable computed in requirement b.display the sawtooth pattern depicted in Exhibit 10.5 in the text.Smooth the changes in accounts receivable by computing the year-end accounts receivable balances for Year 1 through Year 5 using the compound annual growth rate in accounts receivable between the end of 2010 and the end of Year +1 from requirement b.
e.Smooth the changes in accounts receivable using the compound annual growth rate in accounts receivable between the end of 2010 and the end of Year +4 from requirement b.Apply this growth rate to compute accounts receivable at the end of Year +1 through Year +5.Why do the amounts for ending accounts receivable using the growth rate from requirement d.differ from those using the growth rate from this requirement?
f.Compute the accounts receivable turnover for 2010 by dividing sales by the balance in accounts receivable at the end of 2010 (instead of using average accounts receivable as in requirement a).Use this accounts receivable turnover ratio to compute the projected balance in accounts receivable at the end of Year +1 through Year +5.Also compute the percentage change in accounts receivable between the year-ends for Year +1 through Year +5.

Question

Quizplus · Accepted Answer

The Answer of Hart designs,manufactures,and markets toys in domestic and international markets.Sales during 2010 totaled $4,022 million.Accounts receivable totaled $655 million at the beginning of 2010 and $612 million at the end of 2010.
Required: a.Use the average balance to compute the accounts receivable turnover ratio for Hart for 2010.
b.Hart generated a compound annual sales growth rate of 13.0 percent over the past two years.Assume that Hart's sales will continue to grow at that rate each year for Year +1 through Year +5 and that the accounts receivable turnover ratio each year will equal the ratio computed in requirement a.for 2010.Project the amount of accounts receivable at year-end through Year +5 based on the accounts receivable turnover computed in requirement a.Also compute the percentage change in accounts receivable between each of the year-ends through Year +5.
c.Does the pattern of growth in your projections of Hart's accounts receivable seem
reasonable considering the assumptions of smooth growth in sales and steady turnover? Explain.
d.The changes in accounts receivable computed in requirement b.display the sawtooth pattern depicted in Exhibit 10.5 in the text.Smooth the changes in accounts receivable by computing the year-end accounts receivable balances for Year 1 through Year 5 using the compound annual growth rate in accounts receivable between the end of 2010 and the end of Year +1 from requirement b.
e.Smooth the changes in accounts receivable using the compound annual growth rate in accounts receivable between the end of 2010 and the end of Year +4 from requirement b.Apply this growth rate to compute accounts receivable at the end of Year +1 through Year +5.Why do the amounts for ending accounts receivable using the growth rate from requirement d.differ from those using the growth rate from this requirement?
f.Compute the accounts receivable turnover for 2010 by dividing sales by the balance in accounts receivable at the end of 2010 (instead of using average accounts receivable as in requirement a).Use this accounts receivable turnover ratio to compute the projected balance in accounts receivable at the end of Year +1 through Year +5.Also compute the percentage change in accounts receivable between the year-ends for Year +1 through Year +5.

Hart Designs,manufactures,and Markets Toys in Domestic and International Markets