Question

Balance sheet
December 31
Assets 2007 2006
Cash $25,000 $40,000
Short term investments 15,000 60,000
Accounts receivable 50,000 30,000
Inventory 50,000 70,000
Property, plant and equipment (net) 160,000 200,000
Total assets $300,000 $400,000

Liabilities and stockholders equity   
Accounts payable $20,000 $30,000
Short term notes payable 40,000 90,000
Bonds payable 80,000 160,000
Common stock 60,000 45,000
Retained earnings 100,000 75,000
Total liabilities and stockholders equity $300,000 $400,000

Income statement (for the year ended December 31, 2007)

Net sales $360,000
Cost of goods sold 184,000
Gross profit 176,000
Expenses
Selling expenses 30,000
Administrative expenses 59,000
Total expenses 89,000
Income before interest expense and taxes 87,000
Interest expense 12,000
Income before income taxes 75,000
Income tax expense 30,000
Net income $45,000

Additional information
120,000 shares were outstanding in 2007:90,000 shares were outstanding in 2006
Market value of common stock on December 31, 2007 was $12 per share.

For the year of 2007:

Inventory turnover (#) is:
Inventory turnover in days:
Accounts receivable turnover (#) is:
Accounts receviable turnover in days:

Answer 1

1.) Inventory turnover ratio

Inventory turnover ratio = COGS / average inventory

COGS = $184,000

Average inventory = ($50,000 + $70,000) /2 = $60,000

Inventory turnover ratio = $184,000 / $60,000

= 3.066 times

2.) Inventory turnover in days = 365 / Inventory turnover ratio

= 365 / 3.066

=119 days

3.) Accounts receivable turnover ratio

Accounts receivable turnover ratio = Credit sales / average gross accounts receivable

Credit sales = $360,000

average gross accounts receivable = ($50,000 +$30,000) /2 = $40,000

Therefore,

Accounts receivable turnover ratio = $360,000 / $40,000

= 9 times

Note: -Here credit sales is not given in the question so we are taking sales instead of credit sales.

4.) Accounts receivable turnover in days=    365 / Accounts receivable turnover ratio

=365 / 9

=40.55 days