Lesmerises Corporation's most recent balance sheet and income statement appear below: Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $2.85 per share.
-The average collection period for Year 2 is closest to:
A) 1.1 days
B) 0.9 days
C) 63.6 days
D) 59.4 days

Question

Lesmerises Corporation's most recent balance sheet and income statement appear below:   Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $2.85 per share.
-The average collection period for Year 2 is closest to:
A) 1.1 days 
B) 0.9 days 
C) 63.6 days 
D) 59.4 days

Quizplus · Accepted Answer

To calculate the average collection period, we will use the following formula:

Average Collection Period = (Accounts Receivable / Annual Credit Sales) x 365

Accounts Receivable can be calculated by taking the average of beginning and ending accounts receivable, which is (120,000 + 130,000) / 2 = 125,000.

Annual Credit Sales can be calculated by adding net credit sales and the decrease in accounts receivable, which is 1,100,000 + (120,000 - 130,000) = 1,090,000.

So, Average Collection Period = (125,000 / 1,090,000) x 365 = 42.08 or approximately 63.6 days (rounded to the nearest tenth).

Therefore, the closest option is C, 63.6 days.

Lesmerises Corporation's Most Recent Balance Sheet and Income Statement Appear