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29 March, 14:29

Real World Financials ABC Corporation reported the following information in its financial statements for three successive quarters ($ in millions) : Three Months Ended 9/30/2017 (Q1) 6/30/2017 (Q4) 3/31/2017 (Q3) Balance sheets: Accounts receivable, net $ 21,361 $ 19,880 $ 12,970 Income statements: Sales revenue $ 24,620 $ 23,400 $ 22,260 Required: Compute the receivables turnover ratio and the average collection period for Q1 and Q4. Assume that each quarter consists of 91 days. (Round average accounts receivable answers to nearest whole dollar. Enter your answers in millions. Round "Turnover ratio" answers to 3 decimal places.)

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  1. 29 March, 16:29
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    (Q4) Receivables turnover ratio = 1.135

    (Q1) Receivables turnover ratio = 1.153

    Average collection period for Q1=31 7 days

    Average collection period for Q4 = 317 days

    Explanation:

    The Receivables turnover ratio gives us the efficiency of collections and the Average collection period tells us the number of days in which the receivable is collected.

    Three Months Ended (Q1) (Q4) (Q3)

    9/30/2017 6/30/2017 3/31/2017

    Balance sheets:

    Accounts receivable, net $ 21,361 $ 19,880 $ 12,970

    Income statements:

    Sales revenue $ 24,620 $ 23,400 $ 22,260

    Receivables turnover ratio = Net Sales / Average Accounts Receivable

    Average Accounts Receivable = Net Receivables for one Quarter + Net Receivables for other Quarter/2

    (Q3) Receivables turnover ratio = $ 22,260 / $ 12,970 + $ 19,880/2

    (Q3) Receivables turnover ratio = $ 22,260 / 16425

    (Q3) Receivables turnover ratio = 1.355

    This indicates that average accounts receivable balance is converted into cash 1.355 times during the quarter.

    (Q4) Receivables turnover ratio = $ 23,400 / $ 19,880 + $ 21,361 / 2

    (Q4) Receivables turnover ratio = $ 23,400 / 20620.5

    (Q4) Receivables turnover ratio = 1.135

    This indicates that average accounts receivable balance is converted into cash 1. 135 times during the quarter.

    (Q1) Receivables turnover ratio = $ 24,620/$ 21,361 (assuming net is average)

    (Q1) Receivables turnover ratio = 1.153

    This indicates that net accounts receivable balance is converted into cash

    1. 153 times during the quarter.

    Average collection period for Q1 = 365 / Receivables turnover ratio

    Average collection period for Q1 = 365/1.153 = 316.6 = 317 days

    Average collection period for Q1=31 7 days

    Average collection period for Q4 = 365/Receivables turnover ratio

    Average collection period for Q4 = 365/1.15 = 317.4 = 317 days
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Home » Business » Real World Financials ABC Corporation reported the following information in its financial statements for three successive quarters ($ in millions) : Three Months Ended 9/30/2017 (Q1) 6/30/2017 (Q4) 3/31/2017 (Q3) Balance sheets: Accounts receivable,
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