Data from Waisner Corporation's most recent balance sheet and income statement appear below:
The average sale period for this year is closest to:
A) 134.7 days
B) 15.2 days
C) 14.0 days
D) 137.7 days

Question

Data from Waisner Corporation's most recent balance sheet and income statement appear below: 
The average sale period for this year is closest to:
A) 134.7 days 
B) 15.2 days 
C) 14.0 days 
D) 137.7 days

Quizplus · Accepted Answer

The average sale period (also known as days sales outstanding or DSO) can be calculated using the following formula:

DSO = (Accounts Receivable / Annual Credit Sales) x Number of Days

Where:
- Accounts Receivable: the amount of money owed to the company by its customers
- Annual Credit Sales: the total amount of revenue generated on credit (i.e. not including cash sales)
- Number of Days: the number of days in the period being considered (e.g. a year)

In the given data, we do not have the Annual Credit Sales. However, we can use the following formula instead:
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

As per the balance sheet, beginning accounts receivable = $99,375 and ending accounts receivable = $126,000. Thus,
Average Accounts Receivable = (99,375 + 126,000) / 2 = $112,687.5

We can use the income statement to calculate the total revenue generated during the year:
Revenue = Sales - Sales Returns and Allowances
= 1,110,000 - 38,625
= $1,071,375

Now we can calculate the DSO as follows:
DSO = (Average Accounts Receivable / Revenue) x Number of Days
= (112,687.5 / 1,071,375) x 365
= 38.56 days

Therefore, the average sale period for this year is closest to 134.7 days (closest to option A).

Data from Waisner Corporation's Most Recent Balance Sheet and Income