Brief Exercise 14-6 Selected financial data for Tri Town Ltd. are shown below. 2

Question

Brief Exercise 14-6 Selected financial data for Tri Town Ltd. are shown below. 2017 $754,000 ,040,000 991,000 835,000 2,142,000 2,015,000 1,678,000 1,019,000 1,119,000 1,259,000 6,305,000 6,344,000 5,531,000 4,540,000 4,500,000 4,001,000 2018 2016 Accounts receivable (gross) Inventory Total current assets Total current liabilities Net credit sales Cost of goods sold $861,000 $644,000 (a) Calculate current ratio, receivables turnover ratio and inventory turnover ratio for 2018 and 2017. (Round answers to 1 decimal place, e.g. 15.2.) 2018 2017 Current ratio Receivables turnover Inventory turnover times times times times

Explanation / Answer

Current ratio

= Current assets / Current liabilities

2018

= $2,142,000 /$ 1,019,000

= 2.1 : 1

2017

= $2,015,000 / $1,119,000

= 1.8 : 1

Receivables turnover

= Net credit sales / Average accounts receivables

Average accounts receivables

= (Opening accounts receivables + Closing accounts receivables) / 2

2018

= ($754,000 + $861,000) / 2

= $ 807,500

2017

= ($644,000 + $754,000) / 2

= $ 699,000

So, Accounts receivables turnover

2018

= $6,305,000 / $ 807,500

= 7.8 times

2017

= $6,344,000 / $ 699,000

= 9.1 times

Inventory turnover ratio

= Cost of goods sold / Average Inventory

Average Inventory

= (Opening Inventory + Closing Inventory) / 2

2018

= ($991,000 + $1,040,000) / 2

= $1,015,500

2017

= ($835,000 + $991,000) / 2

= $913,000

So, Inventory turnover

2018

= $4,540,000 / $1,015,500

= 4.5 times

2017

= $4,500,000 / $913,000

= 4.9 times

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