Question

The comparative financial statements of Highland Cosmetic Supply for 2016,2015, and 2014 include the data shown...

The comparative financial statements of Highland Cosmetic Supply for 2016,2015, and 2014 include the data shown here?

2016

2015

2014

Balance sheet—partial

Current Assets:

Cash

$90,000

$60,000

$40,000

Short-term Investments

150,000

175,000

135,000

Accounts Receivable, Net

290,000

260,000

240,000

Merchandise Inventory

360,000

345,000

330,000

Prepaid Expenses

78,000

25,000

60,000

Total Current Assets

968,000

865,000

805,000

Total Current Liabilities

580,000

610,000

680,000

Income statement—partial

Net Sales (all on account)

5,850,000

5,130,000

4,240,000

Requirements

1.

 Compute these ratios for

2016

and

2015 :

a.

Acid-test ratio (Round to two decimals.)

b.

Accounts receivable turnover (Round to two decimals.)

c.

Days' sales in receivables (Round to the nearest whole day.)

2.

 Considering each ratio individually, which ratios improved from

2015

to

2016

and which ratios deteriorated? Is the trend favorable or unfavorable for the company?

REPLY

Business   Accounting   
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Homework Answers

Answer #1

1. a.

Acid test Ratio = (Cash+Short Term investments +Accounts Receivable)/ Total Current Liabilities

2016 - (90000+150000+290000)/580000 = 0.92

2015 - (60000+175000+260000)/610000 = 0.81

b .

Accounts receivable turnover ratio = Credit Sales/ Average Accounts Receivable

2016 - 5850000/((290000+260000)/2) = 21.27 times

2015 - 5130000/((260000+240000)/2) = 20.52 times

c.

Days sales in receivables ratio = 365 / Accounts receivable turnover ratio

2016 - 365 /21.27 = 17 days

2015 - 365 /20.52 = 18 days (rounded off)

2. All the ratios have improved from 2015 to 2016. The trend is favorable to the company.

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