Accounts Receivable Analysis Xavier Stores Company and Lestrade Stores Inc. are
ID: 2499476 • Letter: A
Question
Accounts Receivable Analysis
Xavier Stores Company and Lestrade Stores Inc. are large retail department stores. Both companies offer credit to their customers through their own credit card operations. Information from the financial statements for both companies for two recent years is as follows (all numbers are in millions):
a. Determine the (1) accounts receivable turnover and (2) the number of days' sales in receivables for both companies. Round your calculations and answers to one decimal place. Assume 365 days a year.
b. Xavier's accounts receivable turnover is much ______ than Lestrade's. The number of days' sales in receivables is______ for Xavier than for Lestrade. These differences indicate that Xavier is able to turn over its receivables______ quickly than Lestrade. As a result, it takes Xavier _______ time to collect its receivables.
Xavier Lestrade Merchandise sales $8,500,000 $4,585,000 Credit card receivables—beginning 820,000 600,000 Credit card receviables—ending 880,000 710,000Explanation / Answer
a)
1) Accounts Receivable turnover ratio = Net Credit Sales / Average Account Receivable
Average Account Receivable = ( Opening Account Receivable + Closing Account Receivable) / 2
Xavier
= $ 8,500,000 / $ 850,000
= 10 times
AvgAccounts receivable = ( $820,000 + $ 880,000) / 2 = $850,000
Lestrade
= $4,585,000 / $ 655,000
= 7 Times
Avg Accounts Receivable = ($600,000+$710,000)/2 = $655,000
2 ) No. of days in sales Recievable = No. of days in a year / Accounts Receivable turnover ration
Xaviers
= 365 / 10
= 36.5 Days
Lestrade
= 365 / 7
= 52.14 or 52 days Approx
b) Fill in Blanks
1) better
2) Lower
3) More
4) Less