Based on the information in Table 4-2, the average collection period is a. 127 d

Question

Based on the information in Table 4-2, the average collection period is

a. 127 days.
b. 70 days.
c. 89 days.
d. 81 days.

Balance Sheet ssets: $400,000 1,415,000 1,847,500 Cash and marketable securities ccounts receivable Inventories Prepaidl expenses Total current assets Fixed assets 24,000 3,686,5 2,800,000 Less: accum, depr.(1,087,500) Net fixed assets Total assets $5,399,000 Liabilities $600,000 ccounts pavable Notes payable Accrued taxes Total current liabilities 875 92,000 $1,567,000 ng-term debt Common Stock (100,000 shares) Retained Eanings Total liabilities and owner's equity 900,000 700,000 2,232,000 $5,399,000 Net sales (all credit) Less: Cost of goods sold Selling and administrative expense Depreciation expense Interest expense Earnings before taxes Income taxes Net income $6,375,000 (4,375,000) (1,000,000) (135,000) (100,000) $765,000 (306,000) $459,000

Explanation / Answer

Solution-

d. 81 Days

Calculation-

Receivables turnover ratio = Net credit sales / Accounts Receivables

Receivables turnover ratio = $6,375,000 / $1,415,000

Receivables turnover ratio = 4.51 times

Average collection period = Number of working days / Receivables turnover ratio

Average collection period = 365 / 4.51

Average collection period = 81 Days

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