Question

Data from Dunshee Corporation's most recent balance sheet appear below: Year 2 Year 1 Current assets: Cash $ 130 $ 100 Accounts receivable, net 270 290 Inventory 90 110 Prepaid expenses 10 10 Total current assets $ 500 $ 510 Total current liabilities $ 230 $ 220 Sales on account in Year 2 amounted to $1,170 and the cost of goods sold was $730. The average collection period for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)

Answer 1

Answer:

50 days

Explanation:

THE average collection period for Year 2 is closest to 50 days

Year 2:

cost of goods sold = $730

opening inventory = $110

closing inventory = $90 therefore total inventory = 110 + 90 = $200

Average inventory = $100

to calculate inventory turnover ratio = cost of goods sold / average inventory

                                = 730 / 100 = 7.30

The average collection period = 365 days / inventory turnover ratio

= 365/7.30 = 50 days