Question

Excerpts from Huckabee Company's December 31, 2021 and 2020, financial statements are presented below: 2021 2020 Accounts receivable $ 83,000 $ 75,000 Merchandise inventory 61,000 75,000 Net sales 403,000 375,000 Cost of goods sold 243,000 223,000 Huckabee's 2021 average collection period (rounded) is:______.

Answer 1

Answer:

71.57 days

Explanation:

For computing the average collection period first we have to determine the account receivable turnover ratio which is shown below:

Account receivable turnover ratio = Credit sales ÷ average accounts receivable

where,  

Average accounts receivable = (Opening balance of Accounts receivable + ending balance of Accounts receivable) ÷ 2

= ($75,000 + $83,000) ÷ 2

= $79,000

And, the net credit sale is $403,000

Now put these values to the above formula  

So, the answer would be equal to  

= $403,000 ÷ $79,000

= 5.10 times

Now

Average collection period in days = Total number of days in a year ÷ accounts receivable turnover ratio

= 365 days ÷ 5.10 times

= 71.57 days