AutoZone, Inc., claims to be “the nation’s leading auto parts retailer.” It sells replacement auto parts directly to the consumer. BorgWarner, Inc., has over 17,000 employees and produces automobile parts, such as transmissions and cooling systems, for the world’s vehicle manufacturers. The follow¬ ing data were taken from these companies’ 2004 annual reports. All dollar amounts are in thousands.

Required:

a. Before performing any calculations, speculate as to which company will take the longest to collect its accounts receivables. Explain the rationale for your decision.

b. Calculate the accounts receivable turnover ratios for AutoZone and BorgWarner.

c. Calculate the average days to collect accounts receivables for AutoZone and BorgWarner.

d. Do the calculations from Requirements b and c confirm your speculations in Requirement a?

Group Tasks (1) Determine the missing amounts for your company.
(2) Determine the percentage of accounts receivable estimated to be uncollectible at the end of 2007 and 2008 for your company.
(3) Determine the percentage of total sales that are sales on account for your company.
(4) Determine the accounts receivable turnover for your company.

Class Discussion

b. Have a representative of each section put the missing information on the board and explain how it was determined.

c. Which company has the highest percentage of sales that are on account?

d. Which company is doing the best job of collecting its accounts receivable? What procedures and policies can a company use to better collect its accounts receivable?

Transcribed Image Text:

Sales Accounts Receivable AutoZone August 28, 2004 $5,637,025 68,372 BorgWarner December 31, 2004 $3,525,300 499,100