Question

Canadian Bacon Inc. financial statements are presented in the table below.

            Based on the information in the table, and using a 365-day year, calculate operating cycle.

Round the answers to two decimal places

  

Balance Sheet December 31, 2014

Cash and marketable securities	$132,000	Accounts payable	$399,000
Accounts receivable	$311,000	Notes payable	$98,500
Inventories	$512,000	Accrued expenses	$89,300
Prepaid expenses	$11,300	Total current liabilities	$586,800
Total current assets	$966,300	Long-term debt	$799,400
Gross fixed assets	$2,104,000	Par value and paid-in-capital	$298,000
Less: accumulated depreciation	$398,000	Retained Earnings	$988,100
Net fixed assets	$1,706,000	Common Equity	1,286,100
Total assets	$2,672,300	Total liabilities and owner’s equity	$2,672,300

Income Statement, Year of 2014

Net sales (all credit)	$4,276,600.00
Less: Cost of goods sold	$3,292,982.00
Selling and administrative expenses	$349,000.00
Depreciation expense	$148,000.00
EBIT	$486,618.00
Interest expense	$49,600.00
Earnings before taxes	$437,018.00
Income taxes	$174,807.20
Net income	$262,210.80

Answer 1

Answer:
Days’ Sales of Inventory = 365 * Inventories / Cost of Goods sold
Days’ Sales of Inventory = 365 * $512,000 / $3,292,982
Days’ Sales of Inventory = 56.75 days

Days’ Sales Outstanding = 365 * Accounts Receivable / Credit Sales
Days’ Sales Outstanding = 365 * $311,000 / $4,276,600
Days’ Sales Outstanding = 26.54 days

Operating Cycle = Days’ Sales of Inventory + Days’ Sales Outstanding
Operating Cycle = 56.75 days + 26.54 days
Operating Cycle = 83.29 days