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Brenda Smith, Inc. Accounts Receivable

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Brenda Smith, Inc. had a gross profit margin (gross profits à· sales) of 25 percent and sales of $9.75 million last year. Seventy-five percent of the firm's sales are on credit and the remainder are cash sales. Smith's current assets equal $1,550,000, its current liabilities equal $300,000, and it has $150,000 in cash plus marketable securities.

a. If Smith's accounts receivable are $562,500, what is its average collection period?

b. If Smith reduces its average collection period to 20 days, what will be its new level of accounts receivable?

c. Smith's inventory turnover ratio is eight times. What is the level of Smith's inventories?

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Solution Summary

The solution provides the steps for calculating accounts receivable, collection period, level of inventories.

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Brenda Smith, Inc. had a gross profit margin (gross profits ÷ sales) of 25 percent and sales of $9.75 million last year. Seventy-five percent of the firm's sales are on credit and the remainder are cash sales. Smith's current assets equal $1,550,000, its current liabilities equal $300,000, and it has $150,000 in cash plus marketable ...

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