During 2013,Columbia Inc.had beginning accounts receivable of $680,000 and ending accounts receivable of $760,000.Its net sales of $4,500,000 are composed of 20% cash sales and 80% credit sales.Based on this information,what is Columbia's average collection period?
A)58.4 days
B)292.0 days
C)73.0 days
D)5.0 days
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

First, we need to calculate the credit sales for Columbia Inc.
Credit sales = Net sales x % of credit sales
Credit sales = $4,500,000 x 80% = $3,600,000

Next, we need to calculate the average accounts receivable for Columbia Inc.
Average accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
Average accounts receivable = ($680,000 + $760,000) / 2 = $720,000

Finally, we can calculate the average collection period using the following formula:
Average collection period = (Average accounts receivable / Credit sales) x Number of days in the period
We'll assume a 365-day period for this calculation.
Average collection period = ($720,000 / $3,600,000) x 365
Average collection period = 73.0 days

Therefore, the best choice is C) 73.0 days.