Distinctive Media Sign Incorporated sells on account. Recently, Distinctive reported the following figures: Net Credit Sales Net Receivables at end of year Read the requirements. 2018 $ 519,350 $ 38,800 2017 601,500 41,100 Requirement 1. Compute Distinctive's days' sales in receivables for 2018. (Round to the nearest day.) First calculate the accounts receivable turnover. (Abbreviations used: AR turn = accounts receivable turnover ratio; Cash Cash including cash equivalents; ST invest. = short-term investments. Round the accounts receivable turnover ratios to two decimals, X.XX.)
Distinctive Media Sign Incorporated sells on account. Recently, Distinctive reported the following figures: Net Credit Sales Net Receivables at end of year Read the requirements. 2018 $ 519,350 $ 38,800 2017 601,500 41,100 Requirement 1. Compute Distinctive's days' sales in receivables for 2018. (Round to the nearest day.) First calculate the accounts receivable turnover. (Abbreviations used: AR turn = accounts receivable turnover ratio; Cash Cash including cash equivalents; ST invest. = short-term investments. Round the accounts receivable turnover ratios to two decimals, X.XX.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![**Distinctive Media Sign Incorporated sells on account. Recently, Distinctive reported the following figures:**
| | 2018 | 2017 |
|------------------------|---------|---------|
| **Net Credit Sales** | $519,350 | $601,500 |
| **Net Receivables at end of year** | 38,800 | 41,100 |
*Read the requirements.*
---
**Requirement 1.** Compute Distinctive’s days’ sales in receivables for 2018. (Round to the nearest day).
First calculate the accounts receivable turnover. (Abbreviations used: AR turn = accounts receivable turnover ratio; Cash = Cash including cash equivalents; ST invest. = short-term investments. Round the accounts receivable turnover ratios to two decimals, X.XX.)
**Formula:**
\[ AR\ turn = \frac{\text{Net Credit Sales}}{\frac{\text{Net Receivables at end of year (2017) + Net Receivables at end of year (2018)}}{2}} \]
\[ 2018 = \frac{\text{Net Credit Sales}}{\text{Average Net Receivables}} \]
*Data input fields are provided for the computation of the turnover ratio.*
1. Enter Net Credit Sales \( \div \)
2. \( \left(\frac{\text{Net Receivables at the end of 2017} + \text{Net Receivables at the end of 2018}}{2}\right) = \text{Average Net Receivables} \)
3. Calculate the AR turn =
---
Upon determining the accounts receivable turnover ratio, it can be further used to compute the average collection period (days’ sales in receivables):
\[ \text{Days' Sales in Receivables} = \frac{365}{\text{AR turn}} \]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6c0554f3-a7d8-4c12-8db7-464a17f00206%2Fb9029466-703f-4d21-8aeb-421de088773c%2Fwvxk58i_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Distinctive Media Sign Incorporated sells on account. Recently, Distinctive reported the following figures:**
| | 2018 | 2017 |
|------------------------|---------|---------|
| **Net Credit Sales** | $519,350 | $601,500 |
| **Net Receivables at end of year** | 38,800 | 41,100 |
*Read the requirements.*
---
**Requirement 1.** Compute Distinctive’s days’ sales in receivables for 2018. (Round to the nearest day).
First calculate the accounts receivable turnover. (Abbreviations used: AR turn = accounts receivable turnover ratio; Cash = Cash including cash equivalents; ST invest. = short-term investments. Round the accounts receivable turnover ratios to two decimals, X.XX.)
**Formula:**
\[ AR\ turn = \frac{\text{Net Credit Sales}}{\frac{\text{Net Receivables at end of year (2017) + Net Receivables at end of year (2018)}}{2}} \]
\[ 2018 = \frac{\text{Net Credit Sales}}{\text{Average Net Receivables}} \]
*Data input fields are provided for the computation of the turnover ratio.*
1. Enter Net Credit Sales \( \div \)
2. \( \left(\frac{\text{Net Receivables at the end of 2017} + \text{Net Receivables at the end of 2018}}{2}\right) = \text{Average Net Receivables} \)
3. Calculate the AR turn =
---
Upon determining the accounts receivable turnover ratio, it can be further used to compute the average collection period (days’ sales in receivables):
\[ \text{Days' Sales in Receivables} = \frac{365}{\text{AR turn}} \]
Transcribed Image Text:### Requirements
1. **Compute Distinctive's days' sales in receivables for 2018. (Round to the nearest day.)**
2. **Suppose Distinctive's normal credit terms for a sale on account are 2/10, net 30. How well does Distinctive's collection period compare to the company's credit terms? Is this good or bad for Distinctive?**
#### Explanation:
- **Day's Sales in Receivables** is a metric that measures how many days, on average, it takes a company to collect its accounts receivable. This is an important aspect of cash flow management in any business.
- **Credit Terms "2/10, net 30"** means that a customer can take a 2% discount if the invoice is paid within 10 days; otherwise, the full amount is due within 30 days.
### Instructions:
- Use the given financial data for Distinctive to calculate the days' sales in receivables for the year 2018.
- Compare the calculated collection period with Distinctive's credit terms to determine if the company's collection period is within the expected range.
- Evaluate whether the collection period is advantageous or disadvantageous for Distinctive’s financial health.
### Actions:
- Click **Print** to print the requirements.
- Click **Done** to proceed once the calculations are completed.
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