Question

MARNI COMPANY Balance Sheet As of December 31 ASSETS Cash $ 50,000 Accounts receivable 100,000 Inventory 200,000 Net plant and equipment 650,000 Total assets $ 1,000,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable $ 100,000 Accrued expenses 90,000 Long-term debt 250,000 Common stock 100,000 Paid-in capital 50,000 Retained earnings 410,000 Total liabilities and stockholders’ equity $ 1,000,000 MARNI COMPANY Income Statement For the year ended December 31 Sales (all on credit) $ 2,000,000 Cost of goods sold 1,750,000 Gross profit $ 250,000 Sales and administrative expenses 30,000 Fixed lease expenses 10,000 Depreciation 60,000 Operating profit $ 150,000 Interest expense 25,000 Profit before taxes $ 125,000 Taxes (40%) 50,000 Net income $ 75,000 Refer to the tables above. The firm's average collection period is_______, assuming a 360-day calendar. 5.6 days. 20 days. 277 days. 18 days.

Answer 1

Answer:

58 days

Explanation:

The computation of the average collection period is shown below:

Average collection period = Total number of days in a year  ÷ (Sales ÷  Average receivable)

= 360 days ÷  ($500,000 ÷ $80,000)

= 57.6 days

= 58 days

The average receivable is come by dividing the sales from the account receivable

We simply applied the above formula so that the average collection period could come

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