Question

Simon Company's year-end balance sheets follow. 1 Yr Ago 2 Yrs Ago At December 31 Current Yr Assets $ 34,559 $ 40,397 $ 62,800 83,000 Cash 41,659 50,500 53,000 Accounts receivable, net Merchandise inventory Prepaid expenses 89,900 114,000 11,129 10,604 308,159 4,629 Plant assets, net 336,166 271,012 $ 504,960 $ 420,800 $585,754 Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings 85,338 $ 55,546 $145,853 116,141 162,500 110,122 92,997 162,500 109,757 162,500 167,279 140,981 $ 504,960 $ 420,800 Total liabilities and equity $585,754 The company's income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit: 1 Yr Ago $ 600,902 For Year Ended December 31 Current Yr $ 761,480 Sales $ 464,503 $ 390,586 152,028 13,821 9,014 Cost of goods sold Other operating expenses Interest expense 236,059 12,945 Income tax expense 9,899 Total costs and expenses 565,449 723,406 38,074 35,453 Net income 2.34 Earnings per share 2.18 (2-a) Compute accounts receivable turnover. (2-b) For each ratio, determine if it improved or worsened in the current year. Complete this question by entering your answers in the tabs below. Required 2A Required 2B Compute accounts receivable turnover. Accounts Receivable Turnover I Choose Denominator: Choose Numerator: Accounts Receivable Turnover Accounts receivable turnover times Current Yr: 1 Yr Ago: times < Required 2A Required 2B

Answer 1

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Simon Company
Workings	Current Yr	1 Yr Ago	2 Yrs Ago
Accounts Receivable, net	89,900.00	62,800.00	50,500.00
Average Accounts Receivable- Current Yr	76,350.00			This is average Accounts Receivable of Current Yr and 1 Yr ago.
Average Accounts Receivable- 1 Yr Ago		56,650.00		This is average Accounts Receivable of 1 Yr ago and 2 Yr ago.
Answer 2 a	Numerator	Denominator	Accounts Receivable Turnover
	Sales/	Average Accounts Receivable=	Accounts Receivable Turnover
Current Yr	761,480.00	76,350.00	9.97	times
1 Yr Ago	600,902.00	56,650.00	10.61	times
Answer 2 b
Higher Accounts Receivable Turnover means company’s collection of account receivable is efficient and company has high proportion of good customers who pay off their dues quickly.
In the present case,
Accounts Receivable Turnover 1 Yr ago is 10.61, but
Accounts Receivable Turnover for current Yr is 9.97.
So there is a reduction in Accounts Receivable Turnover by 0.63 times. This is not good for the company because Accounts Receivable Turnover has decreased from last year. So the ratio is worsened in the current year.