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Answer (B) is correct . Projected credit sales for the year under the old credit policy were $37,500,000 ($50,000,000 × 75%), resulting in an average balance in receivables of $2,083,333 [$37,500,000 × (20 days ÷ 360 days)]. Under the new policy, credit sales will be $46,875,000 ($37,500,000 × 1.25), resulting in an average receivables balance of $3,906,250 [$46,875,000 × (30 days ÷ 360 days)]. Hence, the expected increase in the balance is $1,822,917 ($3,906,250 – $2,083,333).

Answer (A) is incorrect because This figure results from failing to account for the increased average collection period.
Answer (C) is incorrect because This figure is the average accounts receivable balance under the existing credit terms.
Answer (D) is incorrect because This figure is the average accounts receivable balance under the proposed credit terms.