The following data apply to items (a) and (b). Mr. Sparks, the owner of School Supplies, Inc., wants to maintain control over accounts receivable. He understands that accounts receivable turnover will give a good indication of how well receivables are being managed. School Supplies, Inc., does 70% of its business during June, July, and August. The terms of sale are 2/10, net/60. Net sales for the year ended December 31, 2009, and receivables balances follow:

Net sales ....................$1,500,000

Receivables, less allowance for doubtful accounts

of $8,000 at January 1, 2009 ............ 72,000

Receivables, less allowance for doubtful accounts

of $10,000 at December 31, 2009 .......... 60,000

Required

Answer the following multiple-choice questions:

a. The average accounts receivable turnover calculated from the previous data is

1. 20.0 times.

2. 25.0 times.

3. 22.7 times.

4. 18.75 times.

5. 20.8 times.

b. The average accounts receivable turnover computed for School Supplies, Inc., in item (a) is

1. Representative for the entire year.

2. Overstated.

3. Understated.

(CMA Adapted)