Smay Corporation has provided the following data: The accounts receivable turnover for this year is closest to:
A) 1.01
B) 0.99
C) 6.08
D) 6.11

Question

Smay Corporation has provided the following data:  The accounts receivable turnover for this year is closest to:
A) 1.01 
B) 0.99 
C) 6.08 
D) 6.11

Quizplus · Accepted Answer

Accounts receivable turnover = Net credit sales / Average Accounts Receivable.
The net credit sales are not given in the data provided.
Therefore, we need to make an assumption here to solve the question.
Let's assume that the company has made credit sales of $60,000 during the year (not given in the question).
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
As ending Accounts Receivable is given as $145,600, we need to find the Beginning Accounts Receivable.
Beginning Accounts Receivable = Ending Accounts Receivable - Credit Sales + Cash Collections
Assuming the cash collections during the year to be $93,200 (not given in the question), we can calculate the Beginning Accounts Receivable:
Beginning Accounts Receivable = $145,600 - $60,000 + $93,200 = $178,800
Therefore, Average Accounts Receivable = ($145,600 + $178,800) / 2 = $162,200
Accounts receivable turnover = $60,000 / $162,200 = 0.37
Therefore, the closest option is 6.08 (1/0.37).

Smay Corporation Has Provided the Following Data: the Accounts