Question 1 - A company had an accounts receivable balance of $425,000 at the beg

Question

Question 1 - A company had an accounts receivable balance of $425,000 at the beginning of the year and $500,000 at the end of the year. The total credit sales during the year were $3,600,000. What was the average collection period in days (round to nearest number of days)?

Question 2 - A Corporation has 250,000 shares of $10 par common stock issued and outstanding. AA Corporation also has 50,000 shares of $100, 6% par cumulative preferred stock. In 2016, AA had net income of $3,500,000. The number of shares of both common and preferred stock has not changed during the year, and the preferred stock dividends were paid at the end of 2015. What are the common earnings per share (EPS) for 2016? Round to the nearest cent.

Explanation / Answer

Answer 1:

Average collection period = Average debtors/Credit sales*365

where, average debtors = (Opening debtors+closing debtors)/2

=($425000+$500000)/2 = $462500

So, average collection period = $462500/$3600000*365

=46.89 days i.e. 47 days

Answer 2:

Income earned in 2016: $3500000

Less: Dividend on preferred stock: $300000

Net earning : $3200000

EPS = Net Earning of equity shareholders/no. of equity shareholders

= $3200000/250000

$12.80

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