Question

Missoula Inc. reported the following selected financial statement data: Dec 31, 2020 Dec 31, 2021 Cash $ 47,000 $ 57,500 Accounts receivable (net) 65,000 86,000 Inventory 85,000 89,000 Plant assets (net) 227,000 252,000 Total assets 456,000 429,000 Liabilities 162,000 162,000 Shareholders' equity 294,000 267,000 Net sales 385,000 581,350 Cost of goods sold 237,000 314,000 Net income 37,000 59,000 Required: Compute the average collection period for 2021

Answer 1

Answer:

47.40 days

Explanation:

The average collection period of the Missoula Inc. for the year ended 2021 shall be determined through following mentioned formula:

Average collection period=365/Receivable turnover ratio

First we will calculate the Receivable turnover ratio which shall be calculated as follows:

Receivable turnover ratio=Credit sales in 2021/Average receivables in 2021

Credit sales in 2021= $581,350

Average receivable in 2021=$65,000+$86,000/2=$75,500

Receivable turnover ratio=$581,350/$75,500

                                          =7.7

Now we will calculate the average collection period using above calculations as follows:

Average collection period=365/7.7=47.40 days