Lesmerises Corporation's most recent balance sheet and income statement appear below: Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $2.85 per share.
-The average sale period for Year 2 is closest to:
A) 35.1 days
B) 237.9 days
C) 58.0 days
D) 53.9 days

Question

Lesmerises Corporation's most recent balance sheet and income statement appear below:   Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $2.85 per share.
-The average sale period for Year 2 is closest to:
A) 35.1 days 
B) 237.9 days 
C) 58.0 days 
D) 53.9 days

Quizplus · Accepted Answer

To calculate the average sale period, we use the following formula:

Average sale period = (Accounts Receivable / Net Credit Sales) x Number of Days in the Period

First, we need to calculate the net credit sales:

Net Credit Sales = Total Sales - Cash Sales - Sales Returns and Allowances - Discounts

Net Credit Sales = $5,600,000 - ($3,100,000 + $120,000 + $80,000) = $2,300,000

Next, we need to calculate the accounts receivable:

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

Accounts Receivable = ($280,000 + $350,000) / 2 = $315,000

Finally, we need to calculate the number of days in the period. Since we are given annual financial statements, the number of days in the period is 365.

Now we can calculate the average sale period:

Average sale period = ($315,000 / $2,300,000) x 365 = 49.7 days

Therefore, the closest answer to the average sale period is C) 58.0 days.

Lesmerises Corporation's Most Recent Balance Sheet and Income Statement Appear