Question

Missoula Inc. reported the following selected financial statement data: Dec 31, 2020 Dec 31, 2021 Cash $ 46,000 $ 56,000 Accounts receivable (net) 64,000 84,000 Inventory 84,000 88,000 Plant assets (net) 226,000 250,000 Total assets 453,000 427,000 Liabilities 161,000 161,000 Shareholders' equity 292,000 266,000 Net sales 452,000 562,400 Cost of goods sold 236,000 312,000 Net income 36,000 57,000 Required: Compute the average collection period for 2021. (Round your answer to 1 decimal place.)

Answer 1

Answer:

Average collection period for 2021 is 48 days approximately

Explanation:

The formula for average collection period is 365days/average accounts receivable turnover

The average accounts receivable turnover can be computed using the below formula:

Average accounts receivable turnover=net sales/average accounts receivable

Net sales in 2021 is $562,400

average accounts receivable=(64000+84000)/2

                                                =74000

Hence, average receivable turnover =562400/74000

                                                             =7.6 times

Since the average receivables turnover is 7.6, average collection period is determined as follows;

average collection period=365/7.6

                                           =48.03