Ribaudo Corporation has provided the following financial data from its balance s

Question

Ribaudo Corporation has provided the following financial data from its balance sheet and income statement:

The company’s average collection period for Year 2 is closest to:

70.1 days

1.1 days

72.1 days

1.0 days

Year 2 Year 1 Cash $ 74,000 $ 130,000 Accounts receivable, net $ 255,000 $ 240,000 Inventory $ 173,000 $ 180,000 Total current assets $ 564,000 $ 610,000 Total assets $ 1,350,000 $ 1,330,000 Accounts payable $ 170,000 $ 160,000 Total liabilities $ 633,000 $ 620,000 Total stockholders' equity $ 717,000 $ 710,000 Sales (all on account) $ 1,290,000 Cost of goods sold $ 700,000

Explanation / Answer

Answer:

Average collection Period =70.1 days

Working notes for the answer:

Average collection Period

=365 / Account receivable turnover

Account receivable turnover

=sales on account / Average account receivable

=1290,000 / (255000+240,000)/2

=1,290,000 / 247,500

=5.21

Average collection Period

=365 / Account receivable turnover

=365 /5.21

=70.1 days

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