Excerpts from Sydner Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900.The average sale period for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 63.0 days
B) 89.2 days
C) 236.3 days
D) 97.3 days

Question

Excerpts from Sydner Corporation's most recent balance sheet appear below:  Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900.The average sale period for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 63.0 days 
B) 89.2 days 
C) 236.3 days 
D) 97.3 days

Quizplus · Accepted Answer

To calculate the average sale period (also known as days sales outstanding):

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Beginning Accounts Receivable = Accounts Receivable from the previous year's balance sheet
Ending Accounts Receivable = Accounts Receivable from the current year's balance sheet

Average Accounts Receivable Turnover = Sales on Account / Average Accounts Receivable
Average Sale Period = 365 days / Average Accounts Receivable Turnover

Using the information provided:

Beginning Accounts Receivable = $800
Ending Accounts Receivable = $1,200
Average Accounts Receivable = ($800 + $1,200) / 2 = $1,000

Average Accounts Receivable Turnover = $1,390 / $1,000 = 1.39
Average Sale Period = 365 days / 1.39 = 262.59 (rounded to 2 decimal places, but not final answer)

However, the above calculation includes all sales, both cash and credit, which may not accurately reflect the average sale period for credit sales only. To adjust for this, we need to calculate the portion of total sales that are made on account:

% of Sales on Account = Sales on Account / Total Sales
% of Sales on Account = $1,390 / ($1,390 + Cash Sales)

We do not have Cash Sales information, but we know that total sales = $1,390 + $900 = $2,290
Therefore: % of Sales on Account = $1,390 / $2,290 = 0.6063 (rounded to 4 decimal places)

This means that approximately 61% of sales are made on account. To calculate the average sale period for credit sales only, we can divide the calculated average sale period by 0.61:

Average Sale Period (for Credit Sales Only) = 262.59 / 0.61 = 429.31 (rounded to 2 decimal places, but not final answer)

Therefore, the closest answer choice is B) 89.2 days.

Excerpts from Sydner Corporation's Most Recent Balance Sheet Appear Below