Accounts Receivable Turnover Calculation for Remington Corporation

What is Remington Corporation's accounts receivable turnover?

1) 6.6

2) 9

3) 7.2

4) 6

Final answer: 7.2

Answer:

Remington Corporation's accounts receivable turnover is calculated using the formula for accounts receivable turnover, which is 7.2, based on their given sales, collections, and beginning accounts receivable.

Explanation:

The student has inquired about calculating the accounts receivable turnover for Remington Corporation. To find the accounts receivable turnover, we use the formula: Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable.

Given that Remington had starting accounts receivable of $100,000 at the beginning of the period, sales of $900,000 (assumed to be all on credit), and cash collections of $850,000, we first need to determine the ending accounts receivable. This can be found by taking the beginning accounts receivable plus sales and subtracting cash collections ($100,000 + $900,000 - $850,000), resulting in an ending accounts receivable of $150,000.

Average accounts receivable is calculated by adding the beginning and ending accounts receivable and dividing by 2, which equals ($100,000 + $150,000) / 2 = $125,000. Now, the turnover can be calculated by dividing net credit sales by the average accounts receivable, which is $900,000 / $125,000 = 7.2. Therefore, the accounts receivable turnover for Remington Corporation is 7.2.

Understanding accounts receivable turnover is crucial for businesses to assess their efficiency in collecting payments from customers. A higher turnover ratio indicates that a company is collecting receivables more quickly, which is beneficial for maintaining a healthy cash flow.