Question

Given the following data for 20Y1, select the correctly calculated financial ratio.

Accounts Receivable on 1/1/20Y1	$850,000
Accounts Receivable on 12/31/20Y1	$950,000
Inventory on 1/1/20Y1	$150,000
Inventory on 12/31/20Y1	$190,000
Net Credit Sales for 20Y1	$4,100,000
Cost of Goods Sold for 20Y1	$1,000,000

		Accounts Receivable turns over 6 times per year.
		The average collection period of accounts receivable is every 80 days.
		Inventory is held an average of 38 days before it is sold.
		Inventory turns over 9.55 times per year.

Answer 1

Accounts Receivable on 1/1/20Y1	$850,000
Accounts Receivable on 12/31/20Y1	$950,000
Average accounts receivable (Accounts Receivable on 1/1/20Y1 + Accounts Receivable on 12/31/20Y1)/2	$900,000
Net Credit Sales for 20Y1	$4,100,000
Accounts receivable turnover ( Net credit sales / Average accounts receivable)	4.56
Average collection period (365/Accounts receivable turnover)	80

Inventory on 1/1/20Y1	$150,000
Inventory on 12/31/20Y1	$190,000
Average inventory ( Inventory on 1/1/20Y1+Inventory on 12/31/20Y1)/2	$170,000
Cost of Goods Sold for 20Y1	$1,000,000
Inventory turnover (Cost of good sold/Average inventory)	5.88
Days in inventory (365/Inventory turnover)	62

The average collection period of accounts receivable is every 80 days

Second option is correct.