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    Receivables Turnover/Average collection period

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    Below is the problem and attached is the table.

    The president of Ferman Enterprise Ltd., Angela Ferman, is considering the impact that certain transactions will have on the company's receivable turnover and average collection period ratios. Prior to the following transaction, Ferman's receivables turnover was 6 times, and its average collection period was 61 days.

    A. Complete the table (see attachment), indicating whether each transaction will increase (I), decrease (D), or have no effect (NE) on the ratios.
    B. Angela was reading through the financial statements of some publicly traded companies and noticed that they had recorded a loss on sale of receivables. She would like you to explain why companies sell their receivables.

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    Solution Summary

    The solution explains how to determine the impact of given transactions on receivables turnover and average collection period and why companies sell receivables. See attached file for further details.