Solomon Company would like to compare its days sales in receivables with that of a competitor, L.
Question:
Solomon Company would like to compare its days’ sales in receivables with that of a competitor, L. Konrath Company. Both companies have had similar sales results in the past, but L. Konrath Company has had better profit results. L. Solomon Company suspects that one reason for the better profit results is that L. Konrath Company did a better job of managing receivables. L. Solomon Company uses a calendar year that ends on December 31, while L. Konrath Company uses a fiscal year that ends on July 31. Information related to sales and receivables of the two companies follows:
For Year Ended
December 31,
20XX
L. Solomon Company
Net sales ........................$1,800,000
Receivables, less allowance for doubtful accounts of $8,000 .......110,000
For Year Ended
July 31, 20XX
L. Konrath Company
Net sales .........................$1,850,000
Receivables, less allowance for doubtful accounts of $4,000 ....60,000
Required
a. Compute the days’ sales in receivables for both companies. (Use year-end gross receivables.)
b. Comment on the results.
Step by Step Answer:
Financial Reporting and Analysis Using Financial Accounting Information
ISBN: 978-1439080603
12th Edition
Authors: Charles H Gibson