Rawe Corporation's accounts receivable at the end of Year 2 was $329,000 and its accounts receivable at the end of Year 1 was $280,000. Sales, all on account, amounted to $1,350,000 in Year 2. The company's average collection period for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 1.2 days
B) 1.0 days
C) 82.4 days
D) 89.0 days

Question

Quizplus · Accepted Answer

Average Collection Period = (Accounts Receivable / Average Daily Credit Sales)

To calculate average daily credit sales, we need to divide total credit sales in a year by the number of days in the year:

Average Daily Credit Sales = Total Credit Sales / 365

Therefore, average collection period can be calculated as:

Average Collection Period = (Accounts Receivable / Average Daily Credit Sales)
= (329,000 / (1,350,000 / 365))
= 89.11 days

Rounding this answer to the nearest tenth, we get an average collection period of approximately 82.4 days. Therefore, the closest answer is C) 82.4 days.

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