Question

At​ year-end, Schultz has cash of $ 11 comma 600​, current accounts receivable of $ 48 comma 900​, merchandise inventory of $ 37 comma 900​, and prepaid expenses totaling $ 5 comma 100. Liabilities of $ 55 comma 900 must be paid next year. Assume accounts receivable had a beginning balance of $ 67 comma 400 and net credit sales for the current year totaled $ 807 comma 800. How many days did it take Schultz to collect its average level of​ receivables? ​(Assume 365​ days/year. Round any interim calculations to two decimal places. Round the number of days to the nearest whole​ number.) A. 49 B. 35 C. 29 D. 26

Answer 1

D. 26 days

Step-by-step explanation:

For computing the Average collection period, first, we have to find out the Accounts receivable turnover ratio which is shown below

= Credit sales ÷ average accounts receivable

where,

Average accounts receivable = (Opening balance of Accounts receivable + ending balance of Accounts receivable) ÷ 2

= ,($67,400 + $48,900) ÷ 2

= $58,150

And, the net credit sale is $807,800

Now put these values to the above formula

So, the answer would be equal to

= $807,800 ÷ $58,150

= 13.89 times

Now Average collection period in days = Total number of days in a year ÷ accounts receivable turnover ratio

= 365 days ÷ 13.89 times

= 26.27 days