Financial statement data tor years ending December 31 for Bi

Financial statement data tor years ending December 31 for Bium Company are shown below. 2016 2015 Sales $6,359,760 $5,612,240 Accounts receivable: Beginning of year 443,260 482,020 End of year 520,340 423,180 a. Determine the accounts receivable turnover for 2016 and 2015. Round your answers to one decimal place. Accounts Receivable Turnover 2016 3.3 X 2015 3.1 X b. Determine the number of days\' sales in receivables for 2016 and 2015. Use 365 days in a year in your computations. Round interim calculations and your final answers to one decimal place. Number of Days\' Sales in Receivables 2016 27.7 Vdays 2015 25.9 X days c. Does the change in accounts receivable turnover and the number of days\' sales in receivables from 2015 to 2016 indicate a favorable or an unfavorable trend? Favorable

Solution

Answer of Part a:

For 2015:

Average Accounts Receivable (beginning Accounts Receivable + Ending Accounts Receivable) /2
Average Accounts Receivable = ($482,020 + $423,180) /2
Average Accounts Receivable = $905,200 /2
Average Accounts Receivable = $452,600

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $5,612,240 / $452,600
Accounts Receivable Turnover = 12.4 times

For 2016:

Average Accounts Receivable (beginning Accounts Receivable + Ending Accounts Receivable) /2
Average Accounts Receivable = ($443,260 + $520,340) /2
Average Accounts Receivable = $963,600 /2
Average Accounts Receivable = $481,800

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $6,359,760 / $481,800
Accounts Receivable Turnover = 13.2 times

Answer of Part b:

For 2015:

Number of Days’ Sales in Receivable = 365 / Accounts Receivable Turnover
Number of Days’ Sales in Receivable = 365 / 12.4
Number of Days’ Sales in Receivable = 29.4 days

For 2016:

Number of Days’ sales in Receivable = 365 / Accounts Receivable Turnover
Number of Days’ Sales in Receivable = 365 / 13.2
Number of Days’ Sales in Receivable = 27.7 days