Data from Gofman Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,300 and the cost of goods sold was $900.
-The average collection period for Year 2 is closest to:
A) 0.9 days
B) 39.3 days
C) 36.5 days
D) 1.2 days

Question

Data from Gofman Corporation's most recent balance sheet appear below:  Sales on account in Year 2 amounted to $1,300 and the cost of goods sold was $900.
-The average collection period for Year 2 is closest to:
A) 0.9 days 
B) 39.3 days 
C) 36.5 days 
D) 1.2 days

Quizplus · Accepted Answer

To calculate the average collection period, we need to use the average accounts receivable during the year. We can calculate this by using the beginning and ending balances of accounts receivable:

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2

From the balance sheets, we see that the beginning accounts receivable for Year 2 was $100 and the ending accounts receivable was $200.

Average accounts receivable = ($100 + $200) / 2 = $150

Now we can calculate the average collection period:

Average collection period = (Accounts receivable / Sales) x Number of days in the period

We are given sales on account for Year 2, which amounted to $1,300. Therefore:

Average collection period = ($150 / $1,300) x 365 = 41.92 days

The closest answer choice is C) 36.5 days.

Data from Gofman Corporation's Most Recent Balance Sheet Appear Below