Rawe Corporation's accounts receivable at the end of Year 2 was $329,000 and its accounts receivable at the end of Year 1 was $280,000.Sales, all on account, amounted to $1,350,000 in Year 2.The company's average collection period for Year 2 is closest to:

A) 1.2 days
B) 1.0 days
C) 82.4 days
D) 89.0 days

To calculate the average collection period, we need to use the following formula:

Average Collection Period = (Accounts Receivable / Annual Credit Sales) x Number of Days

We can calculate the annual credit sales using the accounts receivable turnover ratio formula:

Accounts Receivable Turnover Ratio = Annual Credit Sales / Average Accounts Receivable

We can rearrange this formula to solve for annual credit sales:

Annual Credit Sales = Accounts Receivable Turnover Ratio x Average Accounts Receivable

For Year 2:

Accounts Receivable Turnover Ratio = Annual Credit Sales / Average Accounts Receivable
Accounts Receivable Turnover Ratio = $1,350,000 / (($329,000 + $280,000) / 2)
Accounts Receivable Turnover Ratio = 4.5

Annual Credit Sales for Year 2 = 4.5 x $304,500 ($304,500 is the average of Year 1 and Year 2 accounts receivable) = $1,370,250

Now we can calculate the average collection period:

Average Collection Period = (Accounts Receivable / Annual Credit Sales) x Number of Days

Average Collection Period = ($329,000 / $1,370,250) x 365

Average Collection Period = 87.9 days

Therefore, the closest answer is C) 82.4 days.

Accounts receivable turnover = Sales on account ÷ Average accounts receivable*
= $1,350,000 ÷ $304,500 = 4.43 (rounded)
*Average accounts receivable =
($329,000 + $280,000)÷ 2 = $304,500
Average collection period = 365 days ÷ Accounts receivable turnover
= 365 days ÷ 4.43 = 82.4 days (rounded)