Questions: What can be said regarding Smith Son's accounts receivable turnover for Year 2? O It improved from Year 1 to Year 2. O It collected its accounts receivables less effectively in Year 2 as compared to Year 1. O fewer customers purchased items on account during Year 2 as compared to Year 1. O Customers paid their account balances more quickly during Year 2 as compared to Year 1.

Solution Steps

• The problem provides a balance sheet with amounts in millions for Year 1 and Year 2.
• The key figures are Accounts Receivable, Net Sales, and Cost of Goods Sold for both years.

• Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
• Average Accounts Receivable for Year 1 = (611.763 + 603.609) / 2 = 607.686 million
• Average Accounts Receivable for Year 2 = (603.609 + 596.607) / 2 = 600.108 million
• Accounts Receivable Turnover for Year 1 = 5529.892 / 607.686 ≈ 9.10
• Accounts Receivable Turnover for Year 2 = 5528.625 / 600.108 ≈ 9.21

• A higher accounts receivable turnover ratio indicates that the company is collecting its receivables more quickly.
• Year 2 has a higher turnover ratio (9.21) compared to Year 1 (9.10).

Final Answer