Presented here is basic financial information (in millions) from the 2006 annual
ID: 2442440 • Letter: P
Question
Presented here is basic financial information (in millions) from the 2006 annual reports of Green Co. and Brown Co.(in millions) Green Co. Brown Co.
Sales $17,053.6 $10,116.0
Allowance for doubtful accounts, Jan. 1 79.5 94.1
Allowance for doubtful accounts, Dec. 31 79.4 131.9
Accounts receivable balance (gross), Jan. 1 2,643.4 1,509.8
Accounts receivable balance (gross), Dec. 31 2,930.5 1,890.8
Calculate the receivables turnover ratio and average collection period for both companies.
Green Co. Brown Co.
Receivables turnover ratio times times
Average collection period days days
Explanation / Answer
Sales (Green Co.) = $17,053.6
Sales (Brown Co.) = $10,116.0
Allowance for doubtful accounts, Jan.1 (Green Co.) = $79.5
Allowance for doubtful accounts, Jan.1 (Brown Co.) = $94.10
Allowance for doubtful accounts, Dec. 31 (Green Co.) = $79.4
Allowance for doubtful accounts, Dec. 31 (Brown Co.) = $131.9
Accounts receivable balance (gross), Jan.1 (Green Co.) = $2,643.4
Accounts receivable balance (gross), Jan.1 (Brown Co.) = $1,509.8
Accounts receivable balance (gross), Dec.31 (Green Co.) = $2,930.5
Accounts receivable balance (gross), Dec.31 (Brown Co.) = $1,890.80
Accounts Receivables Turnover Ratio = [Sales / Accounts Receivables]
Green Co.
Accounts Receivables of Green Co. at Jan. 31 = [$2,643.40 - $79.50]
Accounts Receivables of Green Co. at Jan. 31 = $2,563.90
Accounts Receivables of Green Co. at Dec.31 = [$2,930.50 - $79.40]
Accounts Receivables of Green Co. at Dec.31 = $2,851.10
Accounts Receivables Turnover = [$17,053.60 / ($2,563.90 + $2,851.10) / 2]
Accounts Receivables Turnover = [$17,053.60 / $2,707.50]
Accounts Receivables Turnover = 6.298 times
Average Collection Period = [365 days / Receivables turnover]
Average Collection Period = [365 / 6.298 times]
Average Collection Period = 57.95 days