1. Use the financial data shown below to calculate the following ratios for the
ID: 2462651 • Letter: 1
Question
1. Use the financial data shown below to calculate the following ratios for the current year:
(a) Current ratio.
(b) Acid-test ratio.
(c) Accounts receivable turnover.
(d) Days' sales uncollected.
(e) Inventory turnover.
(f) Days' sales in inventory.
Income statement data
Sales (all on credit)………………………………… $650,000
Cost of goods sold…………………………………. 425,000
Income before taxes……………………………….. 78,000
Net income………………………………………… 54,600
Ending
Balances
Beginning
Balances
Cash.............................................................
$ 19,500
$ 15,000
Accounts receivable (net) ............................
65,000
60,000
Inventory......................................................
71,500
64,500
Plant and equipment (net)............................
195,000
183,900
Total assets...................................................
$351,000
$323,400
Current liabilities .........................................
$ 62,400
$ 52,700
Long-term notes payable..............................
97,500
100,000
Income statement data
Explanation / Answer
a) Current ratio : Current Asset/ Current Liabilities (19500+65000+71500)/62400 2.5 b Acid-Test Ratio: (Current Asset - Inventory)/ Current Liabilities (19500+65000-71500)/62400 0.21 c Accounts Receivable Turnover: Net Annual Credit Sales/(Beginning Accounts Receivable + Ending Accounts Receivable) / 2 650000/((65000+60000)/2) 10.4 d Day's Sales Uncollected: (Accounts receivable / Net annual credit sales) x 365 (60000/650000)*365 33.69 e Inventory Turnover: COGS/Average Inventory 425000/68000 6.25 f Day's Sales Inventory : (Average Inventory ÷ Cost of Goods Sold) x 365 (68000/425000)*365 58.4
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