Question

The Newkirk Corporation has annual credit sales of $29 million. The average collection period is 34 days. (Enter your answer as directed, but do not round intermediate calculations.)

Required:

What is the average investment in accounts receivable as shown on the balance sheet? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)

Average receivables

$

Answer 1

Average collection period is the no. of days between between the sales are made and the amount is collected from debtors.

Average collection period = 365 / Account receivables turnover ratio   (1)

(assuming 365 days in a year)

Account receivables turnover ratio = Net credit sales / Average account receivables   (2)

Here,

Annual credit sales = $29 million

Average collection period = 34 days

Putting the value of average collection period in equation 1

Account receivables turnover ratio = 365 / 34

Now putting value of Account receivables turnover ratio in equation 2.

Solving this we get,

Average accounts receivables = $ 27,01,369.86

Hope it helps!