Question

Consider the following financial data for Mary’s Computer Stores: Statement of Financial Position as of December 31, 2012 Cash & equivalents $ 104,500 Accounts payable $ 86,500 Accounts receivable 105,500 Short-term bank note 191,000 Inventories 356,500 Accruals 97,500 Total current assets $ 566,500 Total short-term liab. $ 375,000 Long-term debt 258,000 Net fixed assets 605,500 Common equity 539,000 Total assets $ 1,172,000 Total liabilities & equity $ 1,172,000 Profit & Loss Statement for the Year Ended December 31, 2012 Net sales $ 707,500 Cost of sales 444,500 Gross profit $ 263,000 Operating expenses 153,000 Earnings before interest and taxes (EBIT) $ 110,000 Interest expense 54,000 Earnings before taxes (EBT) $ 56,000 Federal and state income taxes (45 percent) 25,200 Net income $ 30,800 Calculate Mary’s average collection period for accounts receivable.

Selected Answer: d. 73.6 days Answers: a. 183.9 days b. 0.1 days c. 54.4 days d. 73.6 days e. 32.7 days

Answer 1

Answer: c. 54.4 days

Note:

Accounts receivable turnover = Net Sales / Accounts receivable

= $ 707,500/$ 105,500

average collection period for accounts receivable = 365 / Accounts receivable turnover

= 365/ ($ 707,500/$ 105,500)

= 54.42756184 days

= 54.4 days