Question

Problem 3-12
Comprehensive Ratio Calculations

The Kretovich Company had a quick ratio of 0.8, a current ratio of 2.5, a days sales outstanding of 33.0 days (based on a 365-day year), total current assets of $840,000, and cash and marketable securities of $90,000.

What were Kretovich's annual sales? Round your answer to the nearest cent.
$  

Answer 1

current ratio=current assets /current liabilities

current liabilities=(840,000/2.5)=336,000

Quick ratio=(current assets-inventory)/current liabilities

0.8=(840,000-inventory)/336000

inventory=840,000-(0.8*336000)

=$571200

Total current assets=inventory+cash and marketable securities+accounts receivable

840,000=90,000+571200+accounts receivable

accounts receivable=840,000-(90,000+571200)

=$178800

Days sales outstanding=(accounts receivable/Annual sales)*365 days

33=(178800/Annual sales)*365

Annual sales=(178800*365)/33

=1,977,636.36(Approx).