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The financial statements of Bolero Manufacturing Inc. report net credit sales of $900,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of the year, respectively.
-What is the average collection period for accounts receivable in days (rounded)?
A)16
B)24
C)32
D)49

Question

Use the following information for questions 
The financial statements of Bolero Manufacturing Inc. report net credit sales of $900,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of the year, respectively.
-What is the average collection period for accounts receivable in days (rounded)?
A)16
B)24
C)32
D)49

Quizplus · Accepted Answer

First, calculate the average accounts receivable:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Average Accounts Receivable = ($80,000 + $40,000) / 2
Average Accounts Receivable = $60,000

Then, calculate the Average Collection Period:

Average Collection Period = (Accounts Receivable / Net Credit Sales) x Number of Days in Period
Average Collection Period = ($60,000 / $900,000) x 365
Average Collection Period = 24.33 (rounded to 24 days)

Therefore, the answer is B.

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