Question

The Golden Eagle Corporation has the following items on their income and balance sheets (values in tables are in thousands:

Balance Sheet Items
(Assets)

	Last Year	Two Years Ago
Cash	440	420
Accounts Receivable	590	480
Inventory	288	288
Total Current Assets
Fixed Assets	4900	5110
Depreciation	2295	2056
Net Fixed Assets

Balance Sheet Items
(Liabilities)

Accounts Payable	550	520
Notes Payable	85	95
Total Current Liabilities
Long Term Liabilities	1050	990
Total Liabilities
Preferred Stock	105	105
Common Stock	337	337
Retained Earnings	1375	1045
Total Liabilities and Equity

Income Statement Items

	Past Year	Two Years Ago
Sales	3000	2700
Cost of Goods Sold	1930	1760
Operating Expenses	590	520
Interest Paid	99	91
Taxes Paid	81	75
Preferred Stock Dividends Paid	94	23

What is the Average Collection Period for last year for Golden Eagle?

Answer 1

Solution :

Average collection period is the days between the credit sales and the date when payment is received from the customer .

Formula for calculation of average collection period is

= 365 / AR turnover ratio

AR turnover ratio = Credit sales / Average Account receivable

AR turnover ratio = 3000/(( 590+480) /2)= 5.607477

Average collection period = 365 / 5.607477 = 65.09

Average collection period = 65 Days