Crowley Building Supply sells various building materials to retail outlets. The
ID: 2476359 • Letter: C
Question
Crowley Building Supply sells various building materials to retail outlets. The company has just approached Sycamore State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:
During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.
Assume that the following ratios are typical of companies in the building supply industry:
Current ratio2.5 Acid-test ratio1.2 Average collection period18 days Average sale period50 days Debt-to-equity ratio0.75 Times interest earned6.0 Return on total assets10% Price-earnings ratio9
Find the Average sale period. (The inventory at the beginning of last year totaled $514,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
Crowley Building Supply sells various building materials to retail outlets. The company has just approached Sycamore State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:
Crowley Building Supply Comparative Balance Sheets This Year Last Year Assets Current assets: Cash $ 59,500 $ 144,500 Marketable securities 4,500 22,500 Accounts receivable, net 482,000 294,000 Inventory 951,680 591,590 Prepaid expenses 22,500 29,500 Total current assets 1,520,180 1,082,090 Plant and equipment, net 1,647,620 1,552,580 Total assets $ 3,167,800 $ 2,634,670 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 812,000 $ 451,000 Bonds payable, 8% 619,500 619,500 Total liabilities 1,431,500 1,070,500 Stockholders' equity: Preferred stock, $25 par, 7% 324,000 324,000 Common stock, $10 par 516,000 516,000 Retained earnings 896,300 724,170 Total stockholders' equity 1,736,300 1,564,170 Total liabilities and stockholders' Equity $ 3,167,800 $ 2,634,670Crowley Building Supply Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,033,000 $ 4,375,000 Cost of goods sold 3,878,600 3,442,600 Gross margin 1,154,400 932,400 Selling and administrative expenses 653,900 534,900 Net operating income 500,500 397,500 Interest expense 49,560 49,560 Net income before taxes 450,940 347,940 Income taxes (35%) 157,829 121,779 Net income 293,111 226,161 Dividends paid: Preferred dividends 22,680 22,680 Common dividends 98,301 62,811 Total dividends paid 120,981 85,491 Net income retained 172,130 140,670 Retained earnings, beginning of year 724,170 583,500 Retained earnings, end of year $ 896,300 $ 724,170
During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.
Assume that the following ratios are typical of companies in the building supply industry:
Current ratio2.5 Acid-test ratio1.2 Average collection period18 days Average sale period50 days Debt-to-equity ratio0.75 Times interest earned6.0 Return on total assets10% Price-earnings ratio9
Find the Average sale period. (The inventory at the beginning of last year totaled $514,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
Explanation / Answer
Average SalesPeriod for the Current Period= 365/Inventory Turnover
Inventory Turnover = COst of Goods Sold/Average Inventory
Inventory Turnover = 3878600/(591590+951680)/2 = 3878600/771635 = 5.03
Average Sales Period = 365/5.03 = 72.5 days
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