Data from Dunshee Corporation's most recent balance sheet appear below:
$\begin{array}{lrr}
&\text { Year 2 } & \text { Year 1 } \\text { Current assets: }\
\text { Cash}&\$ 130 & \$ 100 \
\text { Accounts receivable, net.}&270 & 290 \
\text {Inventory }&90 & 110 \
\text {Prepaid expenses }&10 & 10\
\text { Total current assets. }&\$500&\$510\
\text { Total current liabilities }&\$230&\$220
\end{array}$ Sales on account in Year 2 amounted to $1,170 and the cost of goods sold was $730.
-The average collection period for Year 2 is closest to:
A) 1.1 days
B) 0.9 days
C) 84.3 days
D) 87.3 days

Question

Data from Dunshee Corporation's most recent balance sheet appear below:
 $\begin{array}{lrr}
&\text { Year 2 } & \text { Year 1 } \\text { Current assets: }\
\text { Cash}&\$ 130 & \$ 100 \
\text { Accounts receivable, net.}&270 & 290 \
\text {Inventory }&90 & 110 \
\text {Prepaid expenses }&10 & 10\
\text { Total current assets. }&\$500&\$510\
\text { Total current liabilities }&\$230&\$220
\end{array}$ Sales on account in Year 2 amounted to $1,170 and the cost of goods sold was $730.
-The average collection period for Year 2 is closest to:
A) 1.1 days
B) 0.9 days
C) 84.3 days
D) 87.3 days

Quizplus · Accepted Answer

The average collection period is calculated as (Average Accounts Receivable / Sales on Account) * 365. The average accounts receivable is ($270 + $290) / 2 = $280. Thus, the average collection period is ($280 / $1,170) * 365 ≈ 87.3 days.

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