Question

Exercise 18-09 Your answer is partially correct. Try again. Lendell Company has these comparative balance sheet data: Lendell Company Balance Sheets December 31 2020 2019 Cash $ 15,000 $30,000 Accounts receivable (net) 71,000 60,000 50,000 197,000 175,000 $344,000 $315,000 $50,000 $59,200 Mortgage payable (15%) 108,000 108,000 Common stock, $10 par 138,500 124,500 23,300 $344,000 $315,000 Inventory Plant assets (net) 61,000 Accounts payable Retained earnings 47,500

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Answer 1

1). Average Collection Period means how long time it takes to realise cash on credit sales.

Average collection period = Average accounts receivable balance for the year / Total net sales during the Year

$\fn_cm Average.accounts.receivable.balance.for.the.year = \frac{71,000+60,000 }{2}$

= $ 65,500

Total net sales during the Year = 412,500 - 19,500

= $ 393,000

Average collection period = (65,500/393,000)*365

= 60.83 days

2). Free cash flow

it is cash remain with the company after it pays its operational and capital expenditure

Free cash flow = operating cash flow - capital expenditures

= $ 45,600 - $ 23,800

= $ 21,800