The financial statements included in the 2011 Form 10-k of Columbia Sportswear r
ID: 2492273 • Letter: T
Question
The financial statements included in the 2011 Form 10-k of Columbia Sportswear reported the following amounts (in thousands of dollars):
Net sales, for the year ended December 31, 2011 $1,693,985
Accounts receivable, net, December 31, 2011 $351, 538
Accounts receivable, net December 31, 2010 $300,181
1.Compute Columbia Sportwear’s accounts receivable turnover ratio for the year ended December 31, 2011. (Assume that all sales are on credit.)
2.What is the average collection period in days for an account receivable? Explain your answer.
3.Give some examples of the types of customers you would expect Columbia Sportswear to have. Do you think the average collection period for sales to these customers is reasonable? What other information do you need to fully answer that question?
Explanation / Answer
Solution - 1
receivable turnover ratio = Net Credit Annual sales / Average Receivable
Average Receivable = Receivable at Begening + Receivable at the End / 2
= $ 300,181+ 351,538 / 2
= 651,719/ 2
= $ 325,859.50
receivable turnover ratio = Net Credit Annual sales / Average Receivable
= $ 1,693,985/ 325,859.50
= 5.20 times
Solution 2 -
Average Collection Period = Average Receivable/ Sales per day
Sales Per day = Net Credit Sales / No. of Working Days
= $1,693,985 / 365
= $ 4641.05
Average Receivable = Receivable at Begening + Receivable at the End / 2
= $ 300,181+ 351,538 / 2
= 651,719/ 2
= $ 325,859.50
Average Collection Period = Average Receivable/ Sales per day
= $ 325859.50/ 4641.05
= 70 Days Approxsimately
Solution - 3
It must be noted that while calculating receivable turnover ratio or average collection period, the figure of trade receivable should be taken before deducting bad and doutful debts or provision for bad and doutfull debt as otherwise the results may be missleading as follows:
Annual credit sales - Rs 25000/-
Return inward - 1000/-
Debtors - 3000/-
Bills receivable - 1000/-
Provision for Doutfull debts - 200/-
Avereage collection period is 60 day i.e.
1- 4000*300/24000 = 60days
if provision for doubtful debts is deducted from debtors, the ratio would be :
2- (4000-200)*360/24000 = 57 days
it looks as if situation (2) is better because average collection 57 days against 60 days in 1 situation.
but the fact is that due to inefficient collection there have been bad debts of rs200/- in the 2 case.
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