Question

At​ year-end, Sample has cash of $ 15 ,000​, current accounts receivable of $ 30 ,000​, merchandise inventory of $ 40 ,200​, and prepaid expenses totaling $ 5 ,200. Liabilities of $ 60 ,000 must be paid next year. Assume accounts receivable had a beginning balance of $ 60 ,000 and net credit sales for the current year totaled $ 900 ,000. How many days did it take Sample 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. 37
B. 24
C. 18
D. 12

Answer 1

option (C) 18 days

Step-by-step explanation:

Data provided in the question:

Cash = $15,000

Current accounts receivable = $30,000

Prepaid expenses = $5,200

Liabilities = $60,000

Beginning account receivable = $60,000

Net credit sales for the current year = $900,000

Now,

Average account receivable = ( $30,000 + $60,000 ) ÷ 2

= $45,000

Receivable turnover

= ( Net credit sales ) ÷ ( Average account receivable )

= $900,000 ÷ $45,000

Receivable turnover = 20 times

Therefore,

Number of days to collect its average receivable

= 365 ÷ ( Receivable turnover )

= 365 ÷ 20

= 18.25 ≈ 18 days

Hence,

The answer is option (C) 18 days