4) The following financial information is for Alpha Corporation are for the fisc

Question

4) The following financial information is for Alpha Corporation are for the fiscal years ending 2017 & 2016 (all balances are normal): Item/Account 2017 2016 Accounts Receivable $9,800 $9,400 Inventory 30,000 16,000 Net Sales (all credit) 85,440 71,000 Cost of Goods Sold 62,000 52,000 Net Income 7,200 6,900 Use this information to determine for FY 2017: (Round & enter your answers to one decimal place and enter the value.) 1. the accounts receivable turnover ratio 2. average collection period accounts receivable 3. Gross Profit Margin 4. Profit Margin

Explanation / Answer

1. The accounts receivable turnover ratio for 2017 = Net Credit Sales for 2017 / Average Accounts Receivable

= $ 85,440 / [ ( $ 9,800+ $ 9,400) /2]

= 8.9

2. average collection period accounts receivable  = 365 days / accounts receivable turnover ratio for 2017

= 365 /8.9

= 41.0112

= 41.0

Note : The answer would differ if 360 Days are taken into calculation.

3. Gross Profit Margin = Gross Profit / Net Sales *100

= $ 23,440 / $ 85,440*100

= 27.4%

Note :

Gross Profit = Net Sales - Cost of Goods Sold

= $ 85,440 - $ 62,000

= $ 23,440

4. Profit Margin= Net Income / Sales *100

= $ 7,200 / $ 85,440 *100

= 8.4%

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