Grapp Company had $130,000 in sales on account last year.The beginning accounts receivablebalance was $18,000,and the ending accounts receivable balance was $16,000.The company's average collection period (age of receivables)was closest to which of the following? Do not round intermediate calculations.
A) 44.92 days.
B) 47.73 days.
C) 50.54 days.
D) 95.46 days.

Question

Quizplus · Accepted Answer

To find the average collection period, we need to divide the total number of days in the year by the accounts receivable turnover ratio:

Accounts receivable turnover ratio = Annual credit sales / Average accounts receivable
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2

Annual credit sales = $130,000
Beginning accounts receivable = $18,000
Ending accounts receivable = $16,000

Average accounts receivable = ($18,000 + $16,000) / 2 = $17,000
Accounts receivable turnover ratio = $130,000 / $17,000 = 7.647

To find the average collection period:

Average collection period = 365 days / Accounts receivable turnover ratio

Average collection period = 365 days / 7.647 = 47.73 days

Therefore, the answer is B.

Grapp Company Had $130,000 in Sales on Account Last Year