Cherokee Equipment reported the following items on December 31, 2014 (amounts in
ID: 2407943 • Letter: C
Question
Cherokee Equipment reported the following items on December 31, 2014 (amounts in thousands, with last years amounts also given as needed) EEE (Click the icon to view the financial information) Requirements 1. Compute Cherokee Equipments accounts receivable turnover for 2014 2. Evaluate the ratio value as strong or weak. Assume Cherokee Equipment sells on terms of net 30 the ratio. (Enter Requirement 1. Compute Cherokee Equipment's accounts receivable turnover for 2014. Select the formula, then enter the amounts to amounts nto the Omnula in thousands, and round your final answer o two decmal places, ??? Abbreviation used AR Accounts receivable ) AR Turnover Requirement 2. Evaluate each ratio value as strong or weak Assume Cherokee Equipment sells on terms of net 30 Evaluate the accounts receivable turnover for 2014. (To calculate the average number of days it takes to collect accounts receivable, use an AR turnover ratio to two decimal places, X XX, and assume a 365-day year Round your final answer to the nearest whole number.) Cherokee's accounts receivable turnover ratio indicates that i takes the company on average,days to collect its average level of receivables Thus, the accounts receivable turnover ratio appears since it takes the company, on average, to collect from customers than its 30-day credit terms allowExplanation / Answer
Answer 1.
Average Accounts Receivables = ($250 + $170) / 2
Average Accounts Receivables = $210
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivables
Accounts Receivable Turnover = $1,911 / $210
Accounts Receivable Turnover = 9.10 times
Answer 2.
Average Number of Days’ to Collect Accounts Receivable = 365 / Accounts Receivables Turnover
Average Number of Days’ to Collect Accounts Receivable = 365 / 9.10
Average Number of Days’ to Collect Accounts Receivable = 40 days
Cherokee’s accounts receivable turnover ratio indicates that it takes the company, on average, 40 days to collect its average level of receivable. Thus, the accounts receivable turnover ratio appears weak since it takes the company, on average, 40 day to collect from customers that its 30-day credit terms allow.
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