The following balance sheet information was provided by Paino Company: Assets 20

Question

The following balance sheet information was provided by Paino Company:

Assets     2012    2011
Cash        $2,000    $1,500
A/R        $13,000    $11,000
Inventory    $20,000    $21,000

a. Assuming net credit sales totaled $145,000, what is the company's accounts receivable turnover for 2012?


b. Assuming net credit sales totaled $145,000, what was the company's average number of days to collect receivables in 2012?


c. Assuming cost of goods sold is $110,000, what is the company's inventory turnover in 2012?

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Accounts Receivable Turnover Ratio = Net Credit Sales/Average Accounts Receivable

Accounts Receivable Turnover Ratio= 145000/(13000 + 11000)/2 = 12.08 times

Part B:

Average Number of Days = 365/Accounts Receivable Turnover Ratio = 365/12.08 = 30.21 Days

Part C:

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory = 110000/(20000 + 21000)/2 = 5.365 or 5.37 times

Thanks.

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