Question

Rawe Corporation’s accounts receivable at the end of Year 2 was $337,000 and its accounts receivable at the end of Year 1 was $291,000. Sales, all on account, amounted to $1,383,000 in Year 2. The company’s average collection period for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• 88.9 days

• 83.0 days

• 76.8 days

• 4.4 days

Answer 1

Beginning accounts receivable = $291,000

Ending accounts receivable= $337,000

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable)/2

= (291,000+337,000)/2

= $314,000

Accounts receivable turnover = Sales/ Average Accounts receivable

= 1,383,000/314,000

= 4.40

Average collection period = 365/Accounts receivable turnover

= 365/4.40

= 83.0 days

The company’s average collection period for Year 2 is closest to 83.0 days

Second option is correct.

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