Question

Xavier Stores Company and Lestrade Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (in millions):

	Xavier		Lestrade
Sales	$8,500,000		$4,585,000
Credit card receivables-beginning	820,000		600,000
Credit card receviables-ending	880,000		710,000

a. Determine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round your calculations and answers to one decimal place. Assume 365 days a year.

	Xavier		Lestrade
1. Accounts receivable turnover
2. Number of days' sales in receivables		days		days

b. Xavier's accounts receivable turnover is much HIGHER OR LOWER than Lestrade's. The number of days' sales in receivables is HIGHER OR LOWER for Xavier than for Lestrade. These differences indicate that Xavier is able to turn over its receivables MORE OR LESS quickly than Lestrade. As a result, it takes Xavier MORE OR LESS time to collect its receivables.

Answer 1

ACCOUNTS RECEIVABLE TURNOVER XAVIER BALANCE OF ACCOUNTS RECEIVABLES OPENING CLOSING TOTAL AVERAGE = TOTAL/2 LESTRADE 820000 880000 1700000 850000 600000 710000 1310000 655000 ASSUMED THAT SALES GIVEN IS A CREDIT SALE. TURNOVER = CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLES SALES AVERAGE ACCOUNTS RECEIVABLES TURNOVER XAVIER LESTRADE 8500000 4585000 850000 655000 1107 NO. OF DAYS SALES IN RECEIVABLES XAVIER TOTAL DAYS ACCOUNTS RECEIVABLE TURNOVER DAYS SALES IN RECEIVABLES LESTRADE 365 365 365/10 365/7 36.5 52.14285714 Xavier's accounts receivable turnover is much higher than Lestrade's. The number of days sales in receivables is lower for xavier than for Lestrade. These difference indicates that xavier is able to turnover its receivables more quickly than Lestrade. As a result, it takes Xavier less time to collect its receivables.