7.) The following financial information is for Alpha Corporation are for the fis

Question

7.) The following financial information is for Alpha Corporation are for the fiscal years ending 2017 & 2016 (all balances are normal): Item/Account 2017 2016 Cash $26,000 $16,000 Accounts Receivable 40,000 50,000 Inventory 30,000 22,000 Current Liabilities 76,000 42,000 Net Sales (all credit) 390,000 360,000 Cost of Goods Sold 260,000 250,000 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 Accounts Receivable collection period 3. Gross Profit Margin Question

Explanation / Answer

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

= $ 390,000 / [ ( $ 40,000 + $ 50,000) /2]

= 8.7

2.

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

= 365 / 8.7

= 42.0

Note : If 360 Days are used for calculation, the answer would differ.

3.

Gross Profit = Net Sales - Cost of Goods Sold

= $ 390,000 - $ 260,000

= $ 130,000

Gross Profit Margin = Gross Profit / Net Sales *100

= $ 130,000 / $ 390,000 *100

= 33.3%

3.

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