Attempts: Keep the Highest: 12 4. Financial ratios in the forecasting process Aa
ID: 2620489 • Letter: A
Question
Attempts: Keep the Highest: 12 4. Financial ratios in the forecasting process Aa Aa E Gizmonic Institute Corp. currently has $560,000 in accounts receivable and generated $4,870,000 in sales (all on credit) during the year that just ended. The firm's days sales outstanding (DSO) is the length of a year in all calculations. days? Use 365 days as Gizmonic Institute Corp.'s CFO is unhappy with its DSO and wants to improve collections next year. Sales are expected to grow by 14% next year, and the CFO wants to lower the DSO to the industry average of 30 days. How much accounts receivable is the firm expected to carry? O $456,312 O $593,206 O $501,943 O $479,128 Flash Player MAC 30,0,0,113 Q33 34 ? 2004-2016 Aplia. All rights reserved. 2013 Cengage Learning except as noted. All rights reserved. Grade It Now Save & ContinueExplanation / Answer
Accounts Receivable = $ 560000, Credit Sales = $ 4870000
Accounts Receivable Turnover Ratio = Credit Sales / Accounts Receivable = 4870000 / 560000 = 8.696
Days Sales Outstanding (DSO) = 365 / 8.696 = 41.97 days or 42 days approximately
Let the accounts receivable be K
As credit sales increase by 14%, new sales = 4870000 x 1.14 = $ 5551800
Accounts Receivable Turnover Ratio = 5551800 / K
New DSO = 30
Therefore, 30 = (365 / 5551800) x K
K = (5551800 x 30) / 365 = $ 456312
Hence, the correct option is (a).
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