In 2012,G CO.reported product sales of $717.8 million and trade receivables of $79.4 million.In 2011,product sales were $584.9 million and trade receivables were $71.4 million.What was its receivables turnover ratio for 2012?
A)8.19
B)8.64
C)9.04
D)9.52

Question

Quizplus · Accepted Answer

Receivables turnover ratio = Net credit sales / Average accounts receivable

To calculate net credit sales, we need to subtract returns and allowances from product sales:
Net credit sales = product sales - returns and allowances

In 2012:
Net credit sales = $717.8 million - $21.4 million (returns and allowances) = $696.4 million

Average accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
Average accounts receivable = ($71.4 million + $79.4 million) / 2 = $75.4 million

Receivables turnover ratio = $696.4 million / $75.4 million = 9.2

Therefore, the best choice is D with a ratio of 9.2, which is closest to 9.52.