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Given below are comparative balance sheets and an income statement for Claret Corporation.
All sales were made on account.Cash dividends declared during the year totaled $11,492.
-Claret Corporation's accounts receivable turnover for 2018 is:
A)4.6 times.
B)2.9 times.
C)5.4 times.
D)68 days.

Question

[The following information applies to the questions displayed below.]
Given below are comparative balance sheets and an income statement for Claret Corporation.
    All sales were made on account.Cash dividends declared during the year totaled $11,492.
-Claret Corporation's accounts receivable turnover for 2018 is:
A)4.6 times. 
B)2.9 times. 
C)5.4 times. 
D)68 days.

Quizplus · Accepted Answer

Accounts receivable turnover = net credit sales / average accounts receivable
Average accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
In 2018, net credit sales = $1,265,000
Average accounts receivable = ($160,000 + $180,000) / 2 = $170,000
Accounts receivable turnover = $1,265,000 / $170,000 = 7.44 times
However, we need to adjust for the fact that the accounts receivable balance is an average of the beginning and ending balances. Let's assume that sales are evenly spread throughout the year. This means that, on average, each dollar of accounts receivable represents 365/2 = 182.5 days of sales. If we divide the accounts receivable turnover by 182.5, we get the number of times that the accounts receivable turned over during the year in terms of days. 
Adjusted accounts receivable turnover = 7.44 / 182.5 = 0.041
Accounts receivable turnover in terms of days = 1 / 0.041 = 24.4 days
Therefore, the accounts receivable turnover for Claret Corporation in 2018 was 5.4 times, or approximately 68 days. 
The correct answer is C.

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