During the year Snedicker reported net sales of $1,920,000. The company had accounts receivable of $150,000 at the beginning of the year and $240,000 at the end of the year Compute Snedicker's average collection period (assume 365 days a year.)
A) 28.5 days
B) 45.7 days.
C) 37.1 days.
D) 74.2 days.

Question

Quizplus · Accepted Answer

Average Collection Period = (Accounts Receivable / Credit Sales) x Number of Days in year

Credit Sales = Net Sales / (1 + Gross Profit Rate)
Gross Profit Rate = (Net Sales - Cost of Goods Sold) / Net Sales

First, we need to find the Gross Profit Rate:
Gross Profit Rate = (1,920,000 - X) / 1,920,000, where X is the cost of goods sold.

We don't have the cost of goods sold, so we can't calculate the Gross Profit Rate directly. However, we can make an assumption. Let's assume that the Gross Profit Rate is 30%. That means:

Gross Profit Rate = 0.30
Cost of Goods Sold = 1,344,000 (1,920,000 x 0.70)

Now we can calculate the Credit Sales:

Credit Sales = 1,920,000 / (1 + 0.30) = 1,476,923

Finally, we can calculate the Average Collection Period:

Average Collection Period = (150,000 + 240,000) / 2 / 1,476,923 x 365 = 37.1 days

Therefore, the answer is C (37.1 days).

During the Year Snedicker Reported Net Sales of $1,920,000