Freiman Corporation\'s most recent balance sheet and income statement appear bel

Question

Freiman Corporation's most recent balance sheet and income statement appear below:

Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)

The average sale period for Year 2 is closest to:

58.5 days

33.4 days

217.3 days

56.2 days

Balance Sheet
December 31, Year 2 and Year 1
(in thousands of dollars) Assets Year 2 Year 1 Current assets:     Cash $160 $120     Accounts receivable 220 240     Inventory 120 130     Prepaid expenses         40         40 Total current assets 540 530 Plant and equipment, net       700     700 Total assets $1,240 $1,230       Liabilities and Stockholders’ Equity Current liabilities:     Accounts payable $130 $150     Accrued liabilities 90 90    Notes payable, short term        60       70 Total current liabilities 280 310 Bonds payable       280     290 Total liabilities       560       600 Stockholders’ equity:    Common stock, $2 par value 100 100    Additional paid-in capital-common stock 200 200 Retained earnings      380      330 Total stockholders’ equity      680      630 Total liabilities & stockholders’ equity $1,240 $1,230

Explanation / Answer

Ans :- Average sale period = 365 days / Inventory turnover**

=365/6.24 = 58.5

**Inventory turnover = Cost of goods sold /Average inventory* = $780 / $125 = 6.24

*Average inventory = ($120 + $130) /2 = $125

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