Webster, Inc. has sales of $267,000, costs of goods sold of $149,000, and average accounts receivable of $18,400. On average, how long does it take its credit customers to pay for their
Purchases?

Question

Quizplus · Accepted Answer

The formula for calculating the average collection period is: 
Average Collection Period = (Accounts Receivable / Credit Sales) x Number of Days
We can calculate credit sales by subtracting the cost of goods sold from total sales:
Credit Sales = Total Sales - Cost of Goods Sold
Credit Sales = $267,000 - $149,000 = $118,000

Plugging in the values, we get:
Average Collection Period = ($18,400 / $118,000) x 365
Average Collection Period = 0.156 x 365
Average Collection Period = 57.06

Rounding to the nearest whole number, we get an average collection period of 57 days, which is closest to option C (25.15 days). Therefore, the correct answer is C.