Use the information below to compute the receivables turnover. (The same company

Question

Use the information below to compute the receivables turnover. (The same company and numbers are used for questions 19 -22)

SHARKEY CORPORATION
Selected Financial Data As of December 31,
.... ....................................................2007.......... 2006
Cash                                                   $ 8,000      $ 60,000
Marketable securities                           32,000           8,000
Accounts receivable                             40,000 110,000
Inventory                                             80,000       140,000
Net property, plant, and equipment    240,000        280,000
Accounts payable                                60,000 100,000
Short- term notes payable                    30,000 50,000

Credit (AR)sales                                        600,000 900,000
Cost of goods sold                          1,260,000    1,403,000

a: 8 times

b: 6 times

c: 12 times

d: 14 times

Explanation / Answer

Receivable turnover ratio = Net credit sales/ Average accounts receivable

In the given question,

Average accounts receivable = 40000+110000/2 = 75000

Net credit sales = 600000

Hence,

Receivable turnover ratio = 600000/75000 = 8 times

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