This is not the correct answer. Please see the correct answer for a complete explanation. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.
This is not the correct answer. Please see the correct answer for a complete explanation. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.
This answer results from reducing the sales by the 20% that were installment sales but not reducing the average accounts receivable balance by 20%. The average collection period can be calculated either by including the installment sales in both the sales and the receivables amounts, or by excluding the installment sales from both the sales and the receivables amounts. But including the installment sales in one amount while excluding them from the other amount does not work.
This can be calculated either by including the installment sales in both the sales and the receivables amounts, or by excluding the installment sales from both the sales and the receivables amounts. The number of days in receivables (average collection period) is 360 / accounts receivable turnover ratio. Using the sales and receivables including the installment sales, the accounts receivable turnover ratio is $18,600,000 / $1,380,000, which is 13.48 times. The average collection period is 360 / 13.48= 26.7 days. Using the sales and receivables excluding the installment sales, sales would be $18,600,000 × .80 = $14,880,000 and receivables would be $1,380,000 × .80 = $1,104,000. The accounts receivable turnover ratio is $14,880,000 / $1,104,000 = 13.48 times. And the average collection period is 360 / 13.48 = 26.7 days.
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