Question

Zipper Corporation reported the following condensed income statement for 2015:

Sales		$5,900,000
Cost of goods sold		4,130,000
Gross profit		$1,770,000
Less expenses		-1,520,000
Net income before taxes		$250,000
Less income taxes		100,000
Net income after taxes		$150,000

Assume the following:
Average inventory		$690,000
Average accounts receivable		$1,220,000
Average accounts payable		$390,000

(Use 365 days a year)

Compute the following: (Round answers to 2 decimal places, e.g. 52.75.)

Inventory turnover			times
Accounts receivable turnover			times
Average number of days to sell an item			days
Average number of days to collect an account receivable			days
Number of days in operating cycle			days

Answer 1

(1) Inventory turnover = cost of goods sold / average inventory

=$4,130,000/690,000

=5.99 time

It shows that inventory was sold 5.99 times during the year.

(2) Account receivable turnover is an eficiency ratio which shows how many times a company can convert its receivables into cash

sales/average account receivable

$5,900,000/$1,220,000

=4.84 times

(3)

average number of days to sales

=ending inventory/ costs of goods sold *365

=[$690,000/$4,130,000] *365

=60.98 days

(4) average days to collect account receivable

(Average accounts receivable/average credit sales per day)

=[$1,220,000 / $5,900,000/365 days]

=$1,220,000/16,164.39

=75.48 days

5)number of days in operating cycle

= Days sale of inventory+Days to collect receivable

=60.98+75.48

=136.46 days