Question

Below is selected data of Pronto Company:

Balance Sheet Data	As of December 31:
	2012	2011
Accounts receivable	$671,000	$642,000
Allowance for doubtful accounts	31,000	22,000
Net accounts receivable	$640,000	$620,000
Inventories - LCM	$542,500	$642,500
Income Statement Data
Net credit sales	$3,150,000	$3,000,000
Net cash sales	800,000	600,000
Net sales	$3,950,000	$3,600,000
Cost of goods sold	$2,390,000	$2,160,000
Selling, general and adm. expenses	475,000	350,000
Other	150,000	125,000
Total operating expenses	$3,015,000	$2,635,000
Net income	$   935,000	$   965,000

Required:

a. What is the accounts receivable turnover for 2012?

b. What is the inventory turnover for 2012?

c. Comment on the change of quality of the account receivables from 2011 to 2012. Assuming the estimate of the Allowance account is about right, is it justifiable to accept the change of account receivable quality from 2011 to 2012?

Answer 1

A) Ans:

Accounts Receivable Turnover Ratio For 2012= Net Credit Sales/Average Account Receivables

=$31,50,000/$630,000=5 Times

Net Credit Sales=$31,50,000

Average Accounts Receivables=$620,000+$640,000/2=$630,000

B)Ans:

Inventory Turnover Ratio For 2012= Cost of Goods sold/Average Inventory

=$23,90000/$592,500=4.03 Times

Cost of Goods sold=$2,390,000

Average Inventory=$642,500 +$542,500/2=$592,500

C) Ans:

Based on the Comparative information ,The accounts receivable has a positive indication that the quality of account receivables is acceptable and Increased

Account receivables turnover during 2011= Net Credit Sales/Average Account Receivables=

=$3,000,000/620,000=4.84 and However in 2012=5 times,,Positive

Average accounts receivables =620,000

Inventory turnover ratio for 2011 = Cost of Goods sold/Average Inventory

=$2,160,000/$642,500=3.36 Times in 2012 4.03 times, Positive.

Cost of Goods sold=$2,160,000

Average Inventory=$642,500