PROBLEM # 1: Accounts Receivable Turnover and Average Collection Period

Question # 00049815 Posted By: willy Updated on: 02/21/2015 02:52 AM Due on: 02/22/2015
Subject Accounting Topic Accounting Tutorials:
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PROBLEM # 1: Accounts Receivable Turnover and Average Collection Period

The asset side of the 2011 balance sheet for Leggett & Platt (a furniture manufacturer) is below. The company reported net sales of $3,636.0 million in 2011 and $3,359.1 million in 2010. Use this information to answer the requirements:

LEGGETT & PLATT, INCORPORATED

Consolidated Balance Sheets

December 31

2011

2010

(in millions)

Cash and cash equivalents

$ 236.3

$ 244.5

Accounts and other receivables, net of allowance of $24.3 (2011) and $22.1 (2010)

503.6

478.9

Finished goods

261.3

241.1

Work in process

41.5

47.7

Raw materials and supplies

223.9

218.2

LIFO reserve

(85.7)

(71.7)

Total inventories, net

441.0

435.3

Other current assets

43.1

60.4

Total current assets

1,224.0

1,219.1

Machinery and equipment

1,120.1

1,136.6

Buildings and other

608.5

613.0

Land

45.2

48.5

Total property, plant and equipment

1,773.8

1,798.1

Less accumulated depreciation

1,193.2

1,173.9

Net property, plant and equipment

580.6

624.2

Goodwill

926.6

930.3

Other intangibles, less accumulated amortization of $106.2 and $107.8 at December 31, 2011 and 2010, respectively

116.6

152.3

Sundry

67.3

75.1

TOTAL ASSETS

$2,915.1

$3,001.0

Required:

a. Compute the accounts receivable turnover for 2011 and 2010.At December 31, 2009, accounts and other receivables, gross were $491.6 million.

b. Compute the average number of days that the receivables were outstanding in each year.

c. Does the number of days to collect receivables seem appropriate for Leggett & Platt?

d. How could Leggett & Platt improve its accounts receivable turnover?

e. Explain the changes in the allowance for doubtful accounts from 2010 through 2011. Does it appear that Legget increased or decreased its allowance for doubtful accounts beyond what seems reasonable? As background, write-offs were $19.9 in 2011 and $10 in 2010.

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