Question

At December 31, 2017, Oak Ridge Imports Inc. reported this information on its balance sheet. Accounts receivable Less: Allowance for doubtful accounts $549,000 40,000 During 2018, the company had the following summary transactions related to receivables and sales. Oak Ridge uses the perpetual inventory system. 1. Sales on account amounted to $2,277,000. The cost of the inventory sold was $1,935,450. 2. Sales returns and allowances with a total sales price of $37,000 and a cost of $31,450 were restored to inventory. 3. Collections of accounts receivable were $1,953,000. 4. Write-offs of accounts receivable deemed uncollectible, $44,700. 5. Recovery of bad debts previously written off as uncollectible, $14,100.

Answer 1

Beginning accounts receivable = $549000

Ending accounts receivable = beginning accounts receivable + sales - returns - collections -amount written off

= $549000 + $2277000 - $37000 - $1953000 - $44700

= $791300

net credit sales = sales - sales returns & allowances

= $2277000 - $37000 = $2240000

now,

(a)

Accounts receivable turnover ratio = net credit sales/average accounts receivable

= $2240000/$670150

= 3.3 times

Where average accounts receivable = (beginning accounts receivable + ending accounts receivable)/2

= ($549000 + $791300)/2 = $670150

(b)

Average collection period = 365/accounts receivable turnover ratio

= 365/3.3

= 111 days