Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.
Income Statement
For the year ended December 31, 2007
Orca Industries' accounts receivable turnover is (assume that Orca makes all sales on account)
A) 7.0
B) .53
C) 11.2
D) 10

Question

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.
 Income Statement
For the year ended December 31, 2007
 Orca Industries' accounts receivable turnover is (assume that Orca makes all sales on account)
A) 7.0 
B) .53 
C) 11.2 
D) 10

Quizplus · Accepted Answer

To calculate accounts receivable turnover, we need to divide net credit sales by average accounts receivable. We are not given net credit sales directly but we can calculate it using the formula: Net Sales - Cost of Goods Sold = Gross Profit. Then, we can calculate Net Sales by subtracting operating expenses and interest expense from gross profit.

Net Sales = Gross Profit - Operating Expenses - Interest Expense
Net Sales = $46,000 - $27,000 - $1,500
Net Sales = $17,500

Now we can calculate average accounts receivable by adding beginning and ending accounts receivable balances and dividing by 2.

Average Accounts Receivable = ( $2,500 + $3,000 ) / 2
Average Accounts Receivable = $2,750

Finally, we can calculate accounts receivable turnover by dividing net credit sales by average accounts receivable.

Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
Accounts Receivable Turnover = $17,500 / $2,750
Accounts Receivable Turnover = 6.36

Therefore, the closest answer choice is C) 11.2.

Orca Industries Below Are the Two Most Recent Balance Sheets