The Following Data Are Taken from the Financial Statements of Chow

question 95

Essay

The following data are taken from the financial statements of Chow Company: $\begin{array}{lrr}&2015&2014\\\text { Average accounts receivable } & \$ 540,000 & \$ 450,000 \\\text { Net sales } & \$ 5,970,000 & \$ 4,680,000\end{array}$ 60% of sales are on account and the terms for all credit sales are 2/10 n/30.
Required:
A) Calculate the accounts receivable turnover and the average collection period for both years.
B) What conclusions can an analyst draw about Chow's management of the accounts receivable?
C) If management were able to collect the accounts receivable in line with their credit terms, what would their average accounts receivable balance be in each year? What would be the impact on the liquidity of the company?

• A) Calculate the accounts receivable turnover and the average collection period for both years.
• B) What conclusions can an analyst draw about Chow's management of the accounts receivable?
• C) If management were able to collect the accounts receivable in line with their credit terms, what would their average accounts receivable balance be in each year? What would be the impact on the liquidity of the company?

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Definitions:

Informal Network

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Codetermination Cooperatives

A form of corporate governance that involves the joint decision-making by workers and management in the operation of a business, typically found in cooperatives.

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