(a)
Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In other words, it indicates the number of times the average amount of net accounts receivables collected during a particular period.
Average collection period:
Average collection period indicates the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average.
To calculate: The accounts receivable turnover and average collection period of Company S for the year 2017.
(b)
To find out: whether accounts receivable is a material component of Company S’s current assets in 2017.
(c)
To discuss: The expected change in answer (a), if Company S sells seasonal products.
(d)
To evaluate: The credit risk of Company S’s concentrated receivables.
(e)
To comment: On the informational value of Company S’s Note 19.
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Financial Accounting: Tools for Business Decision Making, 8th Edition
- Tidewater Inc., a retailer, provided the following financial information for its most recent fiscal year: Please see the attachment for details: An examination of the financial statements revealed the following additional information:• Revenues increased during the year as a result of an aggressive marketing campaign aimed at increasing the number of new “Tidewater Card” credit card customers. This is the company’s branded credit card, which can only be used at Tidewater stores. The credit card balances are accounts receivable on Tidewater’s balance sheet.• Some suppliers have made their merchandise available at a deep discount. As a result, the company purchased large quantities of these goods in an attempt to improve the company’s profitability.• In recent years, the company has struggled to pay its accounts payable on time. The company has improved on this during the past year and is nearly caught up on overdue payables balances.• The company reported net losses in each of the two…arrow_forwardAnalyzing Accounts ReceivableLupin Pharmaceuticals, an Indian transnational pharmaceutical company, develops and markets a wide portfolio of branded and generic products. The company reported the following in its 2018 annual report. INR millions 2018 2017 2016 Trade receivables $45,961.5 $38,184.8 $40,432.7 Less provision for doubtful receivables 306.9 318.4 448.2 Trade receivables, net $45,654.6 $37,866.4 $39,984.5 Total assets $140,958 $146,544 $127,375 Revenue from operations 158,042 174,943 142,555 Requireda. Calculate days sale outstanding (DSO) for 2018 and 2017.Note: Round amount (your final answer) to one decimal place (for example, enter 6.8 for 6.77555). DSO for 2018 Answer days DSO for 2017 Answer days b. Determine the total amount that customers owe Lupin each year.Note: Round dollar amount (your final answer) to one decimal place (for example, enter 6.8 for 6.77555). Amount owed in 2018 Answer Amount owed in 2017 Answer Amount owed…arrow_forwardEffective credit management involves establishing credit standards for extending credit to customers, determining the company’s terms of credit, and setting up procedures for invoicing and collecting past-due accounts. The following statement refers to a credit management policy. Select the best term to complete the sentence. The conditions of the credit sale, including cash discounts and due dates, are indicated by the company’s (______) . Consider the case of Newtown Co.: Newtown Co.’s CFO has decided to take a closer look at the company’s credit policy. Newtown Co. has annual sales of $402.8 million, and it currently has an accounts receivable balance of $47.6 million. The first step in analyzing the firm’s credit policy is to determine its days sales outstanding (DSO). Based on this information, Newtown Co.’s DSO is (_____) . (Note: Use 365 days as the length of a year in all calculations. Do not round intermediate calculations. Round your answer to one…arrow_forward
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