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

To calculate the accounts receivable turnover, we divide net credit sales by the average accounts receivable balance for the year. However, we are not given the net credit sales, so we cannot compute the exact accounts receivable turnover. As such, we need to use an estimate or approximation. One way to do this is to use the total revenue figure as a proxy for net credit sales. In this case, we are given the total revenue as $6,495,000. To find the average accounts receivable balance, we take the beginning balance plus the ending balance and divide by 2:
($448,000 + $777,000) ÷ 2 = $612,500

Now we can estimate the accounts receivable turnover as:
Accounts receivable turnover = Total revenue ÷ Average accounts receivable balance
Accounts receivable turnover = $6,495,000 ÷ $612,500
Accounts receivable turnover ≈ 10.61

So the actual accounts receivable turnover is around 10.61. However, none of the answer choices are close to this value. The closest one is C, which is 6.08. Therefore, the best choice is C. Average accounts receivable balance = ($107,000 + $108,000)÷ 2 = $107,500
Accounts receivable turnover = Sales on account ÷ Average accounts receivable balance
= $654,000 ÷ $107,500 = 6.08 (rounded)

Smay Corporation Has Provided the Following Data: the Accounts