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Q12E_b

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Financial & Managerial Accounting
Found in: Page 320
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Barga Co. reported net sales for 2016 and 2017 of $730,000 and $1,095,000, respectively. Its year-end balances of accounts receivable follow: December 31, 2016, $65,000; and December 31, 2017, $123,000.

b. Evaluate and comment on any changes in the amount of liquid assets tied up in receivables.

Answer

Days' sales uncollected have increased from 2016, i.e., 32.50 days, to 2017, i.e., 41 days.

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Step by Step Solution

Step-by-Step SolutionStep 1: Introduction to topic

Days' sales uncollected: It is a liquidity ratio that tells us in how many days or months the debtors will make payments against credit sales to them.

Step 2: Evaluation-

The change from 32.50 to 41 days' sales uncollected indicates that the receivables have become less liquid—the Barga co. Collected accounts receivable in about one month at the end of 2016; this increased by around 8.5 days in 2017. The company needs to follow up to identify the reasons for this change.

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