Excerpts from Sydner Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900. (Round your intermediate calculations to 2 decimal places.)The average collection period for Year 2 is closest to:
A) 55.1 days
B) 0.9 days
C) 1.1 days
D) 57.8 days

Question

Excerpts from Sydner Corporation's most recent balance sheet appear below:  Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900. (Round your intermediate calculations to 2 decimal places.)The average collection period for Year 2 is closest to:
A) 55.1 days 
B) 0.9 days 
C) 1.1 days 
D) 57.8 days

Quizplus · Accepted Answer

First, we need to calculate the accounts receivable turnover ratio:

Accounts Receivable Turnover Ratio = Sales on Account / Average Accounts Receivable

We can calculate the average accounts receivable as:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Looking at the balance sheet, we can see that the beginning accounts receivable for Year 2 was $100 and the ending accounts receivable was $150. Therefore:

Average Accounts Receivable = ($100 + $150) / 2 = $125

Now, we can calculate the accounts receivable turnover ratio:

Accounts Receivable Turnover Ratio = $1,390 / $125 = 11.12

Next, we can calculate the average collection period:

Average Collection Period = 365 days / Accounts Receivable Turnover Ratio

Average Collection Period = 365 days / 11.12 = 32.83 days

Therefore, the closest answer choice is D) 57.8 days.

Excerpts from Sydner Corporation's Most Recent Balance Sheet Appear Below