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?

---

Definitions:

Protein Digestion

Protein digestion is the process by which proteins are broken down into amino acids and smaller peptides by enzymes in the digestive system.

Aspirin

A medication used to reduce pain, fever, inflammation, and prevent blood clots, also known for its role in reducing the risk of heart attacks.

Mucosa

The moist, inner lining of some organs and body cavities, such as the nose, mouth, lungs, and stomach.

Muscularis

A layer of muscle in the walls of various organs, including the digestive tract, responsible for movement and mixing of contents.