Mary Gonzales is evaluating companies in the office supply industry and has comp
ID: 2623562 • Letter: M
Question
Mary Gonzales is evaluating companies in the office supply industry and has compiled the following information:
The industry average receivables collection period:
Did not change from 20X1 to 20X2.
Increased from 20X1 to 20X2.
Decreased from 20X1 to 20X2.
Increased along with the increase in the industry accounts receivable turnover.
20X1 20X2 Company CreditSales Average Receivables
Balance Credit
Sales Average Receivables
Balance A $6.60 million $1.35 million $7.92 million $1.62 million B $3.96 million $1.71 million $5.28 million $1.93 million C $3.30 million $1.00 million $3.96 million $1.27 million D $0.66 million $0.13 million $0.79 million $0.25 million Industry $33.00 million $6.31 million $36.96 million $6.83 million
Explanation / Answer
Industry average receivables collection period in 20X1 = average receivables balance / credit sales * 365 = 6.31 / 33 * 365 = 69.79 days
Industry average receivables collection period in 20X2 = average receivables balance / credit sales * 365 = 6.83 / 36.96 * 365 = 67.45 days
As we can see, the industry average receivables collection period has decreased from 20X1 to 20X2. So the answer is: Decreased from 20X1 to 20X2
Hope this helped ! Let me know in case of any queries.