Question

The following data are taken from the financial statements of Sigmon Inc. Terms of all sales are 2/10, n/45.

	20Y3		20Y2		20Y1
Accounts receivable, end of year	$157,200		$164,000		$171,800
Sales on account	1,092,080		1,007,400

a. For 20Y2 and 20Y3, determine (1) the accounts receivable turnover and (2) the number of days' sales in receivables. Round answers to one decimal place. Assume a 365-day year.

	20Y3		20Y2
1. Accounts receivable turnover
2. Number of days' sales in receivables		days		days

b. The collection of accounts receivable has (improved, deteriorated) . This can be seen in both the (increase, decrease) in accounts receivable turnover and the (increase, decrease) in the collection period.

Answer 1

a.

For 2013

Accounts receivable, beginning = $164,000

Accounts receivable, ending = $157,200

Average accounts receivable = ( Beginning accounts receivable+Ending accounts receivable)/2

= (164,000+157,200)/2

= 321,200/2

= $160,600

Accounts receivable turnover = sales on account/ Average accounts receivable

= 1,092,080/160,600

= 6.8 times

Number of days sales in receivable = 365/ Accounts receivable turnover

= 365/6.8

= 53.7 days

For 2012

Accounts receivable, beginning = $171,800

Accounts receivable, ending = $164,000

Average accounts receivable = ( Beginning accounts receivable+Ending accounts receivable)/2

= (171,800+164,000)/2

= 335,800/2

= $167,900

Accounts receivable turnover = sales on account/ Average accounts receivable

= 1,007,400/167,900

= 6 times

Number of days sales in receivable = 365/ Accounts receivable turnover

= 365/6

= 60.8 days

	20Y3		20Y2
1. Accounts receivable turnover	6.8	times	6	times
2. Number of days' sales in receivables	53.7	days	60.8	days

b.

The collection of accounts receivable has improved . This can be seen in both the increase in accounts receivable turnover and the decrease) in the collection period.