MA-15. Short-Term Solvency Ratios Following are financial data from year-end fin

Question

MA-15. Short-Term Solvency Ratios Following are financial data from year-end financial statements of Portland Company for 2017, 2016 and 2015. 2017 2016 2015 Accounts receivable $136,125 $144,576 $132,000 Cost of goods sold 1,023,750 864,000 960,000 Current assets 450,000 360,000 405,000 Current liabilities 300,000 250,000 310,000 Inventory 225,000 165,000 195,000 Sales 1,642,500 1,752,000 1,200,000 Round all answers to two decimal places. a. Compute the following financial ratios for 2016 and 2017. (Assume Portland Company’s current assets include cash, accounts receivable, marketable securities, and inventory.) 2017 2016 1. Current ratio Answer Answer 2. Acid test ratio Answer Answer 3. Inventory turnover Answer Answer 4. Days sales in receivables Answer Answer

Explanation / Answer

1 calculation of ratios particulars calculations 2017 2016 1 current ratio current assets / current liabilities 450000/300000 360000/250000 current assets 1.50 1.44 2 acid ratio acid assets / current liabilities acid assets current assets - inventory 450000-225000 360000-165000 225000 195000 acid ratio 225000/300000 195000/250000 0.75 0.78 4 inventory turnover ratio cost of goods sold / average inventory average inventory opening inventory + closing inventory / 2 165000+225000/2 195000+165000/2 195000 180000 inventory turnover ratio 1023750/195000 864000/180000 5.25 4.8 3 days sales receivables (accounts receivable / total credit sales ) * number of days (136125/1642500)*365 (144576/1752000)*365 30.25 30.12

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