Question

Use the financial data shown below to calculate the following ratios for the current year: (a)...

Use the financial data shown below to calculate the following ratios for the current year:

(a) Current ratio.
(b) Acid-test ratio.
(c) Accounts receivable turnover.
(d) Days' sales uncollected.
(e) Inventory turnover.
(f) Days' sales in inventory.

Income statement data

Sales (all on credit)

$650,000

Cost of goods sold

425,000

Income before taxes

78,000

Net income

54,600

Ending
Balances

Beginning
Balances

Cash

$19,500

$15,000

Accounts receivable (net)

65,000

60,000

Inventory

71,500

64,500

Plant and equipment (net)

195,000

183,900

Total assets

$351,000

$323,400

Current liabilities

$62,400

$52,700

Long-term notes payable

97,500

100,000

Homework Answers

Answer #1

(a) Current ratio = current assets/current liabilities

= (19,500 + 65,000 + 71,500)/62,400

= 2.50

(b) Acid test ratio = (current assets - inventory)/current liabilities

= (156,000 - 71,500)/62,400

= 1.354

(c) Account receivable turnover

= Net credit sales/Average account receivable

= 650,000/[(65,000 + 60,000)/2]

= 10.40

(d) Days sales uncollected = (Account receivable/net sales) x 365

= (65,000/650,000) x 365

= 36.50

(e) Inventory Turnover = Cost of goods sold/average inventory

= 425,000/[(71,500 + 64,500)/2]

= 6.25

(f) Days sales in inventory = 365/inventory turnover ratio

= 365/6.25

= 58.40

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