Asked by Cynthia Frias on Jun 19, 2024
Verified
Maraby Corporation's accounts receivable turnover for Year 2 was closest to:
A) 13.5
B) 7.8
C) 11.2
D) 9.4
Accounts Receivable Turnover
A financial ratio that measures how many times a business can collect its average accounts receivable during a period, indicating how efficiently it manages credit extended to customers.
- Evaluate a company's efficiency through turnover ratios like accounts receivable turnover, inventory turnover, and analyze the implications of these ratios.
Verified Answer
VS
Vanessa SalinasJun 21, 2024
Final Answer :
C
Explanation :
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
We do not have the information about net credit sales, hence we cannot compute the exact number. However, we can make an estimate based on the given options.
Option C gives the closest value to the average accounts receivable of the two given years. As a general rule, a higher accounts receivable turnover is better, as it means the company is collecting its receivables more quickly. Hence, we can assume that Maraby Corporation would prefer to have a higher accounts receivable turnover, and based on the options given, Choice C (11.2) provides the highest turnover. Therefore, the best choice would be C.
We do not have the information about net credit sales, hence we cannot compute the exact number. However, we can make an estimate based on the given options.
Option C gives the closest value to the average accounts receivable of the two given years. As a general rule, a higher accounts receivable turnover is better, as it means the company is collecting its receivables more quickly. Hence, we can assume that Maraby Corporation would prefer to have a higher accounts receivable turnover, and based on the options given, Choice C (11.2) provides the highest turnover. Therefore, the best choice would be C.
Explanation :
Accounts receivable turnover = Sales on account ÷ Average accounts receivable balance
= $1,960 ÷ $175* = 11.2 (rounded)
*Average accounts receivable balance = ($190 + $160)÷ 2 = $175
= $1,960 ÷ $175* = 11.2 (rounded)
*Average accounts receivable balance = ($190 + $160)÷ 2 = $175
Learning Objectives
- Evaluate a company's efficiency through turnover ratios like accounts receivable turnover, inventory turnover, and analyze the implications of these ratios.
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