Walkers World Company gathered the following information for 2019: Total sales revenue (65% on credit) $432,000 Cost o

Walkers World Company gathered the following information for 2019:
Total sales revenue (65% on credit) $432,000
Cost of goods sold 231,000
Sales returns and allowances (on credit) 44,000
Accounts receivable at end of 2019 ($30,000
increase during 2019) 100,000
Allowance for doubtful accounts:
Beginning of 2019 5,000
End of 2019 7,000
Merchandise inventory at end of 2019 ($10,000
decrease during 2019) 28,000
Assume 365 days in the year.
Calculate each of the following ratios.
A. Receivable turnover ratio.
B. Average age of receivables.
C. Inventory turnover ratio.
D. Average number of days’ supply in inventory

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  1. Walkers World Company gathered the following information for 2019:

    Total sales revenue (65% on credit) $432,000

    Cost of goods sold 231,000

    Sales returns and allowances (on credit) 44,000

    Accounts receivable at end of 2019 ($30,000

    increase during 2019) 100,000

    Allowance for doubtful accounts:

    Beginning of 2019 5,000

    End of 2019 7,000

    Merchandise inventory at end of 2019 ($10,000

    decrease during 2019) 28,000

    Assume 365 days in the year.

    Calculate each of the following ratios.

    A. Receivable turnover ratio.

    B. Average age of receivables.

    C. Inventory turnover ratio.

    D. Average number of days’ supply in inventory

    Reply
  2. Answer:

    A. Receivable turnover ratio. = 4.57 times

    B. Average age of receivables. 94.07 days

    C. Inventory turnover ratio. 7 times

    D. Average number of days’ supply in inventory = 633 days

    Explanation:

    Net Sales $ 388,000

    Sales revenue (65% on credit) $432,000

    Less Sales returns and allowances (on credit) 44,000

    Average Accounts Receivable = Accounts Rec (beg) Accounts Rec (end)/2

    = 70,000+ 100,000/2= $85,000

    A. Receivable turnover ratio.

    Receivable turnover ratio= Net Sales / Average Accounts Receivable

    = 388,000/ 85,000= 4.5647= 4.565= 4.57 times

    A high turnover ratio is favorable because the accounts receivable are quickly collected.

    B. Average age of receivables.

    Average age of receivables= Accounts receivable *365/ Sales

    = 100,000* 365/388,000= 365,000,00/388,000= 94.07 days

    Accounts receivable will be collected in 94 days.

    C. Inventory turnover ratio.

    Inventory turnover ratio= Cost Of Goods Sold/ Average Inventory

    = 231,000/38,000+ 28,000/2

    = 231,000/33,000= 7 times

    A company with a high turnover requires a smaller investment in inventory than one producing the same sales with a lower turn over.

    D. Average number of days’ supply in inventory

    Average number of days’ supply in inventory= Cost of Goods Sold/ 365

    = 231,000 /365= 632.89

    More Inventory will be needed in 633 days

    Reply

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