Rawe Corporation's accounts receivable at the end of Year 2 was $330,000 and its accounts receivable at the end of Year 1 was $282,000. Sales, all on account, amounted to $1,353,000 in Year 2. The company's average collection period for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 76.1 days
B) 89.0 days
C) 82.6 days
D) 4.4 days

Question

Quizplus · Accepted Answer

First, we need to find the average accounts receivable for Year 2:
($330,000 + $282,000) / 2 = $306,000

Next, we can use the formula for average collection period:
Average collection period = (Accounts receivable / Annual credit sales) x 365

Average collection period = ($306,000 / $1,353,000) x 365 = 82.58 or 82.6 days (rounded to 2 decimal places)

Therefore, the closest option is (C) 82.6 days.

Rawe Corporation's Accounts Receivable at the End of Year 2