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American Eagle Outfitters, Inc. sells clothing, accessories, and personal care products for men and women through its retail stores. American Eagle reported the following data (in millions) for two recent years: Assume that accounts receivable (in millions) were $74 million at the beginning of Year 1. a. Compute the accounts receivable turnover for Year 2 and Year 1. Round to two decimal places. b. Compute the day’s sales in receivables for Year 2 and Year 1. Use 365 days and round to one decimal place. c. What conclusions can be drawn from these analyses regarding American Eagle Outfitters’ efficiency in collecting receivables?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 9, Problem 28E
Textbook Problem
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American Eagle Outfitters, Inc. sells clothing, accessories, and personal care products for men and women through its retail stores. American Eagle reported the following data (in millions) for two recent years:

Chapter 9, Problem 28E, American Eagle Outfitters, Inc. sells clothing, accessories, and personal care products for men and

Assume that accounts receivable (in millions) were $74 million at the beginning of Year 1.

  1. a. Compute the accounts receivable turnover for Year 2 and Year 1. Round to two decimal places.
  2. b. Compute the day’s sales in receivables for Year 2 and Year 1. Use 365 days and round to one decimal place.
  3. c. What conclusions can be drawn from these analyses regarding American Eagle Outfitters’ efficiency in collecting receivables?

(a)

To determine

Calculate the accounts receivable turnover for Year 2 and Year 1.

Explanation of Solution

Accounts receivable turnover: 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 simple, it indicates the number of times the average amount of net accounts receivables has been collected during a particular period.

Calculate accounts receivable turnover ratioforYear 2.

Accountsreceivableturnover for Year 2}=SalesAverageaccountreceivable=Sales(Accountsreceivable, ending +Accountsreceivable, beginning2)=$3,522($81+$682)=47.28times

Calculate accounts receivable turnover ratio for Year 1

(b)

To determine

Calculate the day’s sales in receivables at the end of Year 2 and Year 1.

(c)

To determine

Conclude the Efficiency of Incorporation EO’s management in collecting accounts receivables.

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Chapter 9 Solutions

Financial Accounting
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