1. Measures how quickly credit sales are converted into cash. 2. Computed as 365
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Question
1. Measures how quickly credit sales are converted into cash. 2. Computed as 365 days divided by the accounts receivable turnover ratio. | Measures the elapsed time from when inventory is received from suppliers to when cash is received from customers Accounts receivable turnover ratio Operating cycle Average collection period Knowledge Check 02 Kelly Inc. sold $930,000 worth of goods during the year, out of which the year amounted to $95,000 and $115,000 at the end of the year. Compute Kelly's accounts recelvable turnover for the yedr $820,000 was on credit. Accounts receivable at the beginning of 8.63 7.81 713 8.86Explanation / Answer
1.Solution : The correct option is 2nd option i.e 7.81
Kelly’s accounts receivable turnover ratio= Net Credit Sales/ Average accounts receivable
Average Accounts Receivable= ($ 95,000+ $ 115000)/2=$ 105000
Accounts receivable turnover ratio= $ 8,20,000/$ 105000= 7.809=7.81
2. Solution: The correct option is 3rd option i.e=46
Modern Textiles Credit Sales= $ 2500000-$ 550000=$ 19,50,000
Average Accounts Receivable= ($ 225000+ $ 265000)/2= $ 2,45,000
Accounts receivable turnover ratio=$ 1950,000/$ 245000=7.959
Average Collection Period for the year=365/ Accounts receivable turnover ratio
= 365/7.959=45.86= 46 days
3. Solution: The correct option is 1st option i.e= 3.89
Micro Manufacturing Co : Inventory Turnover Ratio= Cost of Goods Sold/Average stock
Cost of Goods Sold=0.3(1880,000)= $ 564000
Average Stock=(opening stock+closing stock)/2=($125000+$165000)/2=$ 145000
Inventory turnover ratio=$ 564000/$ 145000= 3.889=3.89
4. Solution: The correct option is 2nd option i.e=83.52 days
Micro Manufacturing Co: Average Sale Period for the year= 365 days/Inventory Turnover Ratio
Inventory Turnover Ratio=Cost of Goods Sold/Average stock=$ 15,40,000/$ 352500
=4.368= 4.37
Average sale period=365 days/inventory turnover ratio= 365/4.37= 83.52 days
5. Solution: The correct option is 2nd option i.e=2.29
Carson Company: Total ssets Turnover = Net Sales/ Average Total Assets
Net Sales= $ 6000,000
Average Total Assets= ($ 2450,000+ $ 2800,000)/2=$ 2625000
Total ssets Turnover = $ 6000,000/$ 2625000=2.285=2.29
6. Solution: The correct option is 3rd option i.e=7.94
Express Co:Times Interest Earned Ratio=Income before interest and taxes/Interest Expense
Income before interest and taxes= $ 42,000+ $ 33,000+ $ 10,800= $ 85,800
Interest Expense= $ 10800
Times Interest Earned Ratio=$ 85800/$ 10800=7.944= 7.94
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