Old Dominion Antiques Shop reported the following income statement and balance sheet for Year 1:
During Year 1, the company's inventory turnover was 3.76 times and its average number of days to days to sell inventory was 97.1 days.Required:a) Determine the accounts receivable turnover ratio and the average number of days to collect accounts receivable.b) Determine the length of the operating cycle.(Round to one decimal place.)
What will be an ideal response?
a) 8.43 times and 43.3 days
b) 140.4 days
a) Accounts receivable turnover = Sales of $495,000 ÷ Net accounts receivable of $58,720 = 8.43 times
Average days to collect receivables = 365 ÷ 8.43 = 43.3 days
b) Operating cycle = Average number of days to collect receivables of 43.3 days + Average number of days to sell inventory of 97.1 days = 140.4 days
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