Smith's Corporation's accounts receivable were $250,000 at December 31, 2015, and $350,000 at December 31, 2016.

Cash sales for 2016 were $300,000. The accounts receivable turnover was 7.0. Smith's total sales for 2016 were…

Question

Smith's Corporation's accounts receivable were $250,000 at December 31, 2015, and $350,000 at December 31, 2016.

Cash sales for 2016 were $300,000. The accounts receivable turnover was 7.0. Smith's total sales for 2016 were…

BlackTom AI · Accepted Answer

To tackle this problem, start by identifying what the accounts receivable turnover ratio means and what data are given.
Option analysis begins with parsing the turnover figure: AR turnover = 7.0. This ratio is defined as Net credit sales divided by Average accounts receivable.
Next, compute the average accounts receivable using the year-end balances provided: (AR at 12/31/2015 + AR at 12/31/2016) / 2 = (250,000 + 350,000) / 2 = 600,000 / 2 = 300,000.
Now, determine the net credit sales for 2016 by applying the turnover formula: Net credit sales = AR turnover × Average AR = 7.0 × 300,000 = 2,100,000.
This gives the amount of credit sales (money arising from accounts receivable activity) for 2016.
Since cash sales are separately stated as 300,000 for 2016, total sales for the year equal the sum of credit sales and cash sales: 2,100,000 + 300,000 = 2,400,000.
Option-by-option evaluation:
- $2,100,000: This would be the computed net credit sales only, not total sales. It ignores the cash sales component, so it’s incomplete as total 2016 sales.
- $2,750,000: This figure does not align with the given turnover data or the separation between credit and cash sales; it implies a higher credit sales than allowed by AR turnover and average AR.
- $1,800,000: This value is inconsistent with the calculated net credit sales from the turnover formula and the AR average; it’s too low regardless of cash sales.
- $2,400,000: This combines the calculated credit sales (2,100,000) with cash sales (300,000), yielding total 2016 sales consistent with both the turnover data and the cash sales information.
In summary, the AR turnover and the average AR determine credit sales, and then adding cash sales yields total sales for 2016. The only choice that matches this logic is 2,400,000.

BU.210.650.51.FA25 Final Exam- Requires Respondus LockDown Browser

Smith's Corporation's accounts receivable were $250,000 at December 31, 2015, and $350,000 at December 31, 2016. Cash sales for 2016 were $300,000. The accounts receivable turnover was 7.0. Smith's total sales for 2016 were…

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