The following information (in millions) was taken from the December 31 financial

Question

The following information (in millions) was taken from the December 31 financial statements of Canadian National Railway Company (CN):

(a) For 2015 and 2014, calculate CN’s current ratio, receivables turnover, and average collection period. (Round answers to 1 decimal place, e.g. 5.2.)

2015 2014 2013 Accounts receivable, gross Allowance for doubtful accounts Accounts receivable, net Revenues Total current assets Total current liabilities 5885 $937822 878 928 815 12,611 12,134 10,575 2,153 1,9931,977 2,998 2,20 2,498

Explanation / Answer

Note: For computing current ratio, net accounts receivables are taken in to consideration. But while computing, receivable turnover, gross accounts receivable are considered without deducting allowance for doubtful debt. Current ratio = Current Assets / Current liabilities 2014 = $ 1,993 / $2,201    =    0.91 2015 = $ 2,153/ $ 2,998   =   0.72 Receivable turnover = Sales Revenue / Average accounts receivable(gross) Average collection period = Number of days in a year / Receivable trunover 2014 Average accounts receivable = 822+ 937 /2 = 879.50 Receivable turnover = 12,134 /879.50 = 13.80 times Average collection period = ( 365 /13.80) = 26.45 days 2015 Average accounts receivable =937+885/2 = 911 Receivable Turnover = 12,611 / 911 = 13.84 times Average collection period = 365 / 13.84 = 26.37 days 2015 2014 Current ratio 0.72 : 1 0.91 : 1 Receivables turnover 13.80 times 13.84 times Average collection period 26.45 days 26.37 days

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