Tops, Inc. has sales of $705,000. The cost of goods sold is equal to 60% of sales. The beginning accounts receivable balance is $33,000 and the ending accounts receivable balance is $36,000.
How long on average does it take the ﬁrm to collect its receivables?

Question

Quizplus · Accepted Answer

Step 1: Calculate the cost of goods sold (COGS)
COGS = Sales x 60%
COGS = $705,000 x 60%
COGS = $423,000

Step 2: Calculate the average accounts receivable (AR)
AR = (Beginning AR + Ending AR) / 2
AR = ($33,000 + $36,000) / 2
AR = $34,500

Step 3: Calculate the receivables turnover ratio (RT)
RT = Sales / AR
RT = $705,000 / $34,500
RT = 20.43

Step 4: Calculate the days sales outstanding (DSO)
DSO = 365 days / RT
DSO = 365 / 20.43
DSO = 17.86 days

Therefore, the best choice is B, which is 17.86 days.

Tops, Inc Has Sales of $705,000