Exercise 911 Accounts receivable turnover inventory turnover

Exercise 9-11 Accounts receivable turnover, inventory turnover, and net margin LO 9-2, 9-4 Selected data from Stuart Company follow: Balance Sheets As of December 31 2018 2017 Accounts receivable $ 396,000 $ 380,000 Allowance for doubtful accounts (19,800 ) (15,200 ) Net accounts receivable $ 376,200 $ 364,800 Inventories, lower of cost or market $ 476,500 $ 435,000 Income Statement For the Years Ended December 31 2018 2017 Net credit sales $ 2,017,000 $ 1,757,000 Net cash sales 419,000 308,000 Net sales 2,436,000 2,065,000 Cost of goods sold 1,600,000 1,422,000 Selling, general, and administrative expenses 239,600 214,800 Other expenses 39,600 22,600 Total operating expenses $ 1,879,200 $ 1,659,400 Required Compute the accounts receivable turnover for 2018. Compute the inventory turnover for 2018. Compute the net margin for 2017. (For all requirements, round your answers to 2 decimal places.)

Solution

SOLUTION

(A) Accounts Receivable Turnover ratio=Net Credit sales / Average Accounts Receivable

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable)/2

= ($364,800+$376,200) / 2

=$741,000/2 = $370,500

Accounts Receivable Turnover ratio = $2,017,000 / $370,500

= 5.44 times

(B) Inventory Turnover ratio=Net Cost of good sold / Average Inventory

Average Inventory = (Beginning inventory + Ending Inventort)/2

= ($435,000 + $476,500) / 2

= $911,500 / 2 = $455,750

Inventory Turnover ratio= $1,600,000 / $455,750

= 3.51times

(C) Net margin = (Net income / Net sales) * 100

Net income = Net sales - Total operating expenses

= $1,757,000 - $1,659,400 = $97,600

Net margin = $97,600 /  $1,757,000 = 5.55%