Accounts receivable turnover : Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period. Days’ sales in receivables: Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period. To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

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Answer 1

Question

Chapter 8, Problem 8.6BPE

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

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Mercury Corp. has no debt outstanding and a total market value of $350,000. Earnings before interest and taxes (EBIT) are projected to be $60,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 22% higher. If there is a recession, then EBIT will be 28% lower. The company is considering a $180,000 debt issue with an interest rate of 7%. The proceeds will be used to repurchase shares of stock. There are currently 9,000 shares outstanding. Ignore taxes for questions a) and b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. Required: Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued.

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Answer 2

Question

Chapter 8, Problem 8.6BPE

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

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Answer 3

Question

Chapter 8, Problem 8.6BPE

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

Expert Solution & Answer

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Answer 4

Question

Chapter 8, Problem 8.6BPE

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

Expert Solution & Answer

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Answer 5

Chapter 8, Problem 8.6BPE

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

Answer 6

Chapter 8, Problem 8.6BPE

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

Answer 7

Chapter 8, Problem 8.6BPE

(a)

To determine

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the sales by the average amount of net accounts receivables. In other words, average receivable turnover ratio identifies the number of times the average amount of accounts receivables being collected during a particular period.

Days’ sales in receivables:

Days’ sales in receivables indicate the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average. It is otherwise known as average collection period.

To calculate: Company R’s accounts receivable turnover ratio for 2016 and 2015.

Answer 8

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

Answer 9

(b)

To determine

To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

Answer 10

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

Answer 11

(c)

To determine

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

Answer 12

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Answer 13

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Answer 14

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Answer 15

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Solution Summary: The author explains Accounts receivable turnover, which is calculated by dividing the sales by the average amount of net accounts.

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To calculate: Company R’s days’ sales in receivables for 2016 and 2015.

To identify: Whether the change in accounts receivable turnover and the day’s sales in receivables from 2015 to 2016 are favorable or unfavorable.

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Chapter 8 Solutions