Granger Corporation had $191,000 in sales on account last year. The beginning accounts receivable balance was $22,000 and the ending accounts receivable balance was $32,000. The corporation's average collection period was closest to: (Round your intermediate calculations to 2 decimal places.)
A) 42.0 days
B) 51.6 days
C) 61.2 days
D) 7.1 days

Question

Quizplus · Accepted Answer

Average collection period = (Accounts receivable / Average daily credit sales)

Average daily credit sales = Annual credit sales / 365 days

Annual credit sales = $191,000

Average daily credit sales = 191,000 / 365 = $523.29 (approx)

Accounts receivable turnover = Annual credit sales / Average accounts receivable

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2
= (22,000 + 32,000) / 2 = $27,000

Accounts receivable turnover = 191,000 / 27,000 = 7.07 (approx)

Average collection period = 365 / Accounts receivable turnover
= 365 / 7.07 = 51.6 days (approx)

Therefore, the closest average collection period is 51.6 days, which corresponds to answer choice B.

Granger Corporation Had $191,000 in Sales on Account Last Year