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Avg. Collection Period, Managing Current Asset, Question Thread

  • 1.  Avg. Collection Period, Managing Current Asset, Question Thread

    Posted 11-09-2011 12:12 PM

    160.

    Locar Corporation had net sales last year of $18,600,000 (of which 20% were installment sales).  It also had an average accounts receivable balance of $1,380,000.  Credit terms are 2/10, net 30.  Based on a 360-day year, Locar’s average collection period last year was

     

    a)      26.2 days.

    b)      26.7 days.

    c)       27.3 days.

    d)      33.4 days.

     

    Correct Answer: b)

     

    I’ve got the answer 33.4 days. What is the mistake I actually committing?

     

    I will be highly thankful to you if any one Please solve this Question.

     

    Thanks and Regards

     

    Shariq Ghaznavi



  • 2.  Re: Avg. Collection Period, Managing Current Asset, Question Thread

    Posted 11-10-2011 10:14 PM

    Dear Shariq

    To Solve this question you should consider info. given about Installment sales and credit terms as non sense, then you should calculate Accounts Receivable Turnover

    A/R Turnover= Net Credit Sales/Average Accounts Receivable

    18,600K/1,380K= 13.48 Times

    then you can calculate Average collection period= 360/A/R Turnover

    360/13.48=26.7 days.

    regards;



  • 3.  Re: Avg. Collection Period, Managing Current Asset, Question Thread

    Posted 11-19-2011 01:35 PM

    Thank you so Much Mr. Hany Mahmoud

     

    Regards

    Shariq Ghaznavi