# CMA Study Group

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## PART 2 average collection period for account receivables problem

• #### 1.  PART 2 average collection period for account receivables problem

Posted 09-06-2022 12:31 PM
Dear Friends,

How can we calculate average collection period? I couldnt calculate Net Sales on Credit?

Best regards

The Statement of Financial Position for King Products Corporation for the fiscal years ended June 30, Year 2, and June 30, Year 1, is presented below. Net sales and cost of goods sold for the year ended June 30, Year 2, were \$600,000 and \$440,000, respectively.
King Products Corporation
Statement of Financial Position
(in thousands)
June 30
Year 2
Year 1
Cash
\$     60
\$  50
Marketable securities (at market)
40
30
Accounts receivable (net)
90
60
Inventories (at lower of cost or market)
120
100
Prepaid items
30
40
Total current assets
\$   340
\$280
Land (at cost)
\$   200
\$190
Building (net)
160
180
Equipment (net)
190
200
Patents (net)
70
34
Goodwill (net)
40
26
Total long-term assets
\$   660
\$630
Total assets
\$1,000
\$910
Notes payable
\$     46
\$  24
Accounts payable
94
56
Accrued interest
30
30
Total current liabilities
\$   170
\$110
Notes payable, 10% due 12/31/Year 7
\$     20
\$  20
Bonds payable, 12% due 6/30/Year 10
30
30
Total long-term debt
\$     50
\$  50
Total liabilities
\$   220
\$160
Preferred stock -- 5% cumulative, \$100 par, nonparticipating,
authorized, issued and outstanding, 2,000 shares
\$   200
\$200
Common stock -- \$10 par, 40,000 shares authorized,
30,000 shares issued and outstanding
300
300
150
150
Retained earnings
130
100
Total equity
\$   780
\$750
Total liabilities & equity
\$1,000
\$910

Question17 King Products Corporation's average collection period for the fiscal year ended June 30, Year 2, using a 360-day year was
 A. 36 days. B. 61 days. C. 54 days. D. 45 days.

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TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
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• #### 2.  RE: PART 2 average collection period for account receivables problem

Posted 09-07-2022 01:25 AM

I'm getting D. 45 days, with the assumption of the whole \$600,000 being credit sales. It's hard to take into account all of cash flow possibilities just to separate cash and credit sales with the sales figure given above.

What is the correct answer per testbank?

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Gabriel Alan Otto
Accountant
Streamwood IL
United States
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• #### 3.  RE: PART 2 average collection period for account receivables problem

Posted 09-07-2022 04:23 AM
Dear Gabriel,

Yes the correct answer is 45 days and I totally agree with you that the question doesnt indicate Sales on Credit explicitly..

Thank you for your help, I wish you have a nice day.

Regards

------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------

• #### 4.  RE: PART 2 average collection period for account receivables problem

Posted 09-07-2022 04:30 AM
I think all the other information is irrelevant. DSO = 45 days is the closest answer. Just use the 600,000 as net credit sales.

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Kiranraj Tanwar
Director/Manager
Nallasopara MH
India
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• #### 5.  RE: PART 2 average collection period for account receivables problem

Posted 09-07-2022 05:31 AM
Hello Dear

=Average account Receivable
Net Credit Sales                       X 360 days

Average Account Receivable = Opening Receivable+ Ending Receivable
2
=     60000+90000/2  = 75000

Net Sales = 600000

So here we have to apply formula mentioned in Above= 75000 / 600000*360 = 45 days

so option : D is Correct

------------------------------
Naeem Ghulam Hussain
Accountant
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• #### 6.  RE: PART 2 average collection period for account receivables problem

Posted 09-07-2022 07:09 AM
Good day
I would assume the credit sales is the net sales.

Regards

• #### 7.  RE: PART 2 average collection period for account receivables problem

Posted 09-07-2022 09:07 AM
Hi Dear,

Yes because there is no further information if the sales was on credit or cash, so we can be assume the net sales as credit sales.

thanks
Regards

------------------------------
Naeem Ghulam Hussain
Accountant
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