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 (age of receivables) for Year 2 is closest to:
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)

Average daily credit sales = (Annual credit sales / 365 days)

Annual credit sales = Sales - Cash sales
Annual credit sales = $1,350,000 - $0 = $1,350,000

Average daily credit sales = $1,350,000 / 365 = $3,698.63

Accounts receivable turnover = $1,350,000 / (($329,000 + $280,000) / 2) = 5.35

Average collection period = 365 days / 5.35 = 68.22 days

Therefore, the closest answer is C) 82.4 days.

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