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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Accounts receivable turnover

Use the data in Exercises 9-27 and 9-28 to analyze the accounts receivable turnover ratios of the Campbell Soup Company and American Eagle Outfitters, Inc.

  1. a. Compute the average accounts receivable turnover ratio for Campbell Soup and American Eagle for the years shown in Exercises 9-27 and 9-28.
  2. b. Does Campbelll Soup or American Eagle have the higher average accounts receivable turnover ratio?
  3. c. Explain why the average turnover ratios are different in (b).

(a)

To determine

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.

To calculate: The average accounts receivable turnover of Company S.

Explanation

Calculate accounts receivable turnover ratio of Company S for Year 2.

Accountsreceivableturnover for Year 2}=SalesAverageaccountreceivable=Sales(Accountsreceivable, ending +Accountsreceivable, beginning2)=$8,082($647+$6702)=12.27times

(1)

Calculate accounts receivable turnover ratio of Company S for Year 1.

Accountsreceivableturnover for Year 1}=SalesAverageaccountreceivable=Sales(Accountsreceivable, ending +Accountsreceivable, beginning2)=$8,268($670+$6352)=12.67times

(2)

Calculate average accounts receivable turnover ratio of company S.

Average accounts receivableturnover ratio of company S}=[Accountsreceivable turnover for Year 1 + Accountsreceivable turnover for Year 2 ]2=12.27times(2)+12.67 times(1)2= 12.47 times

Calculate accounts receivable turnover ratio of Incorporation EO for Year 2

(b)

To determine

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 identify: Whether Company CS or Incorporation EO has the higher average accounts receivable turnover ratio.

(c)

To determine

To explain: The reason for the difference in average accounts receivable turnover ratio for Company CS and Incorporation EO.

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