The following information pertains to Soho Company. Assume that all statement of financial position amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the accounts receivable turnover for Soho?
A) 2.8 times
B) 2 times
C) 3.4 times
D) 3 times

Question

The following information pertains to Soho Company. Assume that all statement of financial position amounts represent both average and ending balance figures. Assume that all sales were on credit.  What is the accounts receivable turnover for Soho?
A) 2.8 times 
B) 2 times 
C) 3.4 times 
D) 3 times

Quizplus · Accepted Answer

Accounts Receivable Turnover = (Total Credit Sales) / (Average Accounts Receivable)
Total Credit Sales = $300,000 + $400,000 + $500,000 = $1,200,000
Average Accounts Receivable = ($40,000 + $60,000 + $80,000) / 3 = $60,000
Accounts Receivable Turnover = $1,200,000 / $60,000 = 20 times per year
Average collection period = 365 / Accounts Receivable Turnover = 365 / 20 = 18.25 days per year
Therefore, the accounts receivable turnover for Soho is 3.4 times.

The Following Information Pertains to Soho Company