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Costco Wholesale Corporation operates membership warehouses that sell a variety of branded and private label products. Headquartered in Issaquah, Washington, it also sells merchandise online in the United States (Costco.com) and in Canada (Costco.ca). For two recent years, Costco reported the following (in millions): Assume that the accounts receivable (in thousands) were $1,822 at the beginning of Year 1. 1. Compute the accounts receivable turnover for Year 2 and Year 1. Round to two decimal places. 2. Compute the days’ sales in receivables at the end of Year 2 and Year 1. Use 365 days and round to one decimal place. 3. What conclusions can be drawn from (1) and (2) regarding Costco’s efficiency in collecting receivables? 4. Given the nature of Costco’s operations, do you believe Costco’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company such as the Campbell Soup Company ? Explain.

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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 8CP
Textbook Problem
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Costco Wholesale Corporation operates membership warehouses that sell a variety of branded and private label products. Headquartered in Issaquah, Washington, it also sells merchandise online in the United States (Costco.com) and in Canada (Costco.ca). For two recent years, Costco reported the following (in millions):

Chapter 9, Problem 8CP, Costco Wholesale Corporation operates membership warehouses that sell a variety of branded and , example  1

Assume that the accounts receivable (in thousands) were $1,822 at the beginning of Year 1.

  1. 1. Compute the accounts receivable turnover for Year 2 and Year 1. Round to two decimal places.
  2. 2. Compute the days’ sales in receivables at the end of Year 2 and Year 1. Use 365 days and round to one decimal place.
  3. 3. Chapter 9, Problem 8CP, Costco Wholesale Corporation operates membership warehouses that sell a variety of branded and , example  2What conclusions can be drawn from (1) and (2) regarding Costco’s efficiency in collecting receivables?
  4. 4. Chapter 9, Problem 8CP, Costco Wholesale Corporation operates membership warehouses that sell a variety of branded and , example  3Given the nature of Costco’s operations, do you believe Costco’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company such as the Campbell Soup Company? Explain.

(1)

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)=$116,199($1,972+$1,8172)=61

(2)

To determine

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

(3)

To determine

Conclude the Efficiency of Corporation C’s management in collecting accounts receivables.

(4)

To determine

Ascertain whether Corporation C’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company.

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Chapter 9 Solutions

Financial Accounting
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