The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the receivables turnover for Soho?

Question

The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.  What is the receivables turnover for Soho?

Quizplus · Accepted Answer

Receivables turnover = Credit Sales / Average Accounts Receivable
Credit Sales = $5,100,000 + $7,900,000 = $13,000,000
Average Accounts Receivable = ($1,260,000 + $2,340,000) / 2 = $1,800,000
Receivables turnover = $13,000,000 / $1,800,000 = 7.2 times (Note: This is the turnover for the entire year)
Since the question only asks for the turnover, assuming it is for one year, and all balance sheet amounts represent average figures, we can divide this turnover by 12 to get the monthly turnover.
Monthly turnover = 7.2 / 12 = 0.6 times
Rounding up to one decimal place, we get 0.6 times.
Therefore, the receivables turnover for Soho is closest to 4.8 times (Option C).

The Following Information Pertains to Soho Company