Question

The following information is available for Market, Inc. and Supply, Inc. at December 31: Accounts Accounts receivable Allowance for doubtful accounts Sales revenue Market, Inc. $ 59, 280 2,448 616,960 Supply, Inc. $ 77,200 2,456 917,100 Required a. What is the accounts receivable turnover for each of the companies? b. What is the average days to collect the receivables? c. Assuming both companies use the percent of receivables allowance method, what is the estimated percentage of uncollectible accounts for each company?

Answer 1

Answer to Part a

Accounts Receivable Turnover = Net Credit Sales / Net Accounts Receivables

For Market Inc, = 6,16,960 / (59,200 - 2,448) = 10.9 times.

For Supply Inc, = 9,17,100 / (77,200 - 2,456) = 12.3 times.

Answer to Part b

Average days to collect receivables = 365 /  Accounts Receivable Turnover

For Market Inc, = 365 / 10.9 = 33 days.

For Supply Inc, = 365 / 12.3 = 30 days.

Answer to Part c

Estimated % of uncollectible accounts = Allowance for doubtful accounts / Gross Accounts Receivable * 100

For Market Inc, = 2,448 / 59,200 * 100 = 4% (rounded off).

For Supply Inc, = 2,456 / 77,200 * 100 = 3% (rounded off).