The parts of the comparative IS of a firm for the years of 2

The parts of the comparative I/S of a firm for the years of 2016 and 2017 looks as follows:

2016 2017

Sales $100,000 $105,000

COGS $40,000 $52,500

SG&A $10,000 $21,000

and the B/S shows the Accounts Receivables balances for 2016 and 2017 as 10,000 and 15,000 respectively.

Based on the above information, forecast 2018 Accounts Receivables balance. Put the nearest dollar amount without comma or dollar sign

Solution

First of all, we will calculate the accounts receivable turnover ratio Accounts receivable turnover ratio = Net Credit sales/Average accounts receivable We are assuming all the sales are credit sales Sales $105,000 Beginning accounts receivable $10,000 Ending accounts receivable $15,000 Average accounts receivable [(10000+15000)/2] $12,500 Accounts receivable turnover ratio 8.40 Now we will forecast the sales for 2018 Sales in 2016 $100,000 Sales in 2017 $105,000 % increase in sales 5% Sales in 2018 = Sales in 2017 + (sales in 2017 x 5%) $110,250 Now we will forecast 2018 accounts receivable balance Accounts receivable turnover ratio = Net Credit sales/Average accounts receivable 8.40 = $110,250/Average accounts receivable Average accounts receivable = $110250/8.40 Average accounts receivable = $13125 Beginning Accounts receivable $15,000 $13,125 = ($15000+Ending accounts receivable)/2 Ending accounts receivable = ($13125 x 2)-$15000                                                          = $26250-$15000                                                          = $11,250