138
PROBLEM 6-5
a.
365 days
=
365
=
10.14 times per year
Accounts receivable
turnover in days
36
b.
365 days
=
12.0 times per year
c.
Gross Receivables
=
$280,000
=
47.36 days
Net Sales/365
$2,158,000/365
d.
Net Sales
=
$3,500,000
=
10.80 times per year
Accounts Gross Receivables
$324,000
PROBLEM 6-6
a.
Ending Inventory
=
Days’ Sales in Inventory
Cost of Goods Sold/365
$360,500
=
62.66 days
$2,100,000/365
b. No. Since J. Shaffer Company uses LIFO inventory, the ending inventory is
computed using costs that are not representative of the current cost. The cost of
c. The number of days’ sales in inventory would be a helpful guide when compared with
139
PROBLEM 6-7
a.
Average Inventory
=
Inventory Turnover in Days
Cost of Goods Sold/365
=
$280,000
=
81.76 Days
$1,250,000/365
b.
Cost of Goods Sold
=
Merchandise Inventory Turnover
Average Inventory
$1,250,000
=
4.46 times per year
$280,000
or
365
=
Merchandise Inventory Turnover
Inventory Turnover in Days
365
=
4.46 times per year
81.8
140
PROBLEM 6-8
a.
Accounts Receivable Turnover (in days)
=
Average Gross Receivable
Net Sales/365
($180,000 + $160,000)/2
=
19.70 days
$3,150,000/365
b.
Inventory Turnover (in days)
=
Average Inventory
Cost of Goods Sold/365
($480,000 + $390,000)/2
=
$435,000
=
70.57 days
$2,250,000/365
$2,250,000/365
c.
Operating
=
Accounts Receivable
+
Inventory Turnover
Cycle
Turnover in Days
In Days
=
19.70 days
+
70.57 days = 90.27 days
PROBLEM 6-9
Days’ Sales in
+
Days Sales in
=
Estimated days to realize
cash from ending inventory
Receivables
Inventory
Days’ Sales in Receivables
=
Gross Receivables
Net Sales/365
$560,000 + $30,000
=
$590,000
=
49.51 days
$4,350,000/365
$4,350,000/365
Days’ Sales
in Inventory
=
Ending Inventory
=
$680,000
=
68.94 days
Cost of Goods Sold/365
$3,600,000/365
49.51 Days
+
68.94 Days
=
118.45 days
141
PROBLEM 6-10
a.
Days’ Sales in
Receivables
=
Gross Receivables
=
$480,000 + $25,000
=
50.50 days
Net Sales/365
$3,650,000/365
b.
Days’ Sales in
Inventory Using
the Cost Figure
=
Ending Inventory
=
$570,000
=
73.00 days
Cost of Goods Sold/365
$2,850,000/365
goods sold.
Ending Inventory
=
$900,000
=
104.29 days
Cost of Goods Sold/365
$3,150,000/365
d. The replacement cost data should be used for inventory and cost of goods sold
when it is disclosed. Replacement cost places inventory and cost of goods sold on a
142
PROBLEM 6-11
a.
Working
Capital
=
Current
Assets
–
Current
Liabilities
=
$1,052,820
–
$459,842
=
$592,978
b.
Current Ratio
=
Current Assets
=
$1,052,820
=
2.29
Current Liabilities
$459,842
c.
Acid-Test Ratio
=
Cash Equivalents & Net Receivables
& Marketable Securities
Current Liabilities
$33,493 + $215,147 + $255,000
=
$503,640
=
1.10
$459,842
$459,842
d.
Cash Ratio
=
Cash Equivalents + Marketable Securities
Current Liabilities
$33,493 + $215,147
=
$248,640
=
0.54
$459,842
$459,842
e.
Days’ Sales in Receivables
=
Gross Receivables
Net Sales/365
$255,000 + $6,000
=
$261,000
=
31.23 days
$3,050,600/365
$3,050,600/365
f.
Accounts Receivable Turnover in Days
=
Average Gross Receivables
Net Sales/365
($255,000 + $6,000 + $288,000)/2
=
$274,500
=
32.84 days
$3,050,600/365
$3,050,600/365
143
g.
Days’ Sales
in Inventory
=
Ending Inventory
=
$532,000
=
87.36 days
Cost of Goods Sold/365
$2,185,100/365
h.
Inventory Turnover in Days
=
Average Inventory
Cost of Goods Sold/365
($523,000 + $565,000)/2
=
$544,000
=
90.87 days
$2,185,100/365
$2,185,100/365
i.
Operating Cycle
=
Accounts Receivable
Turnover in Days
+
Inventory Turnover
in days
123.71 days
=
32.84 days
+
90.87 days
PROBLEM 6-12
Total
Current
Assets
Total
Current
Liabilities
Net
Working
Capital
Current
Ratio
a.
+
0
+
+
b.
+
0
+
+
c.
+
0
+
+
d.
—
—
0
+
e.
—
0
—
—
f.
0
0
0
0
g.
+
0
+
+
h.
0
0
0
0
i.
—
0
—
—
j.
0
—
+
+
k.
0
0
0
0
l.
0
+
—
—
m.
+
+
0
—
n.
0
+
—
—
o.
—
0
—
—
144
PROBLEM 6-13
the companies and the amount needed.
PROBLEM 6-14
PROBLEM 6-15
a. (1) Working Capital:
(2) Current Ratio:
(3) Acid-Test Ratio:
145
(4) Accounts Receivable Turnover:
(5) Inventory Turnover:
(6) Inventory Turnover In Days:
b. The short-term liquidity of the firm has improved between 2010 and 2011. The
working capital increased by $60,000, while the current ratio increased from 1.33 to
control of the inventory.
146
PROBLEM 6-16
a. Based on the year-end figures
(1) Accounts Receivable Turnover in Days:
Average Gross Receivables
=
($75,000 + 50,000)/2
=
5.70 Days
Net Sales / 365
$4,000,000/365
(2) Accounts Receivable Turnover per Year:
Net Sales
=
$4,000,000
=
64.00 Times per year
Average Gross Receivables
($75,000 + $50,000)/2
(3) Inventory Turnover in Days:
Average Inventory
=
($350,000 + $400,000)/2
=
76.04 Days
Cost of Goods Sold / 365
$1,800,000/365
(4) Inventory Turnover per Year:
Cost of Goods Sold
=
$1,800,000
=
4.80 Times per year
Average Inventory
($350,000 + 400,000)/2
b. Using average figures:
Total Monthly Gross Receivables
$
6,360,000
12
Average
$
530,000
Total Monthly Inventory
$
5,875,000
12
Average
$
489,583
(1) Accounts Receivable Turnover in Days:
Average Gross Receivables
=
$530,000
=
48.36 days
Net Sales / 365
$4,000,000 / 365
(2) Accounts Receivable Turnover per Year:
Net Sales
=
$4,000,000
=
7.55 times per year
Average Gross Receivables
$530,000
(3) Inventory Turnover in Days:
Average Inventory
=
$489,583
=
99.28 days
Cost of Goods Sold/365
$1,800,000/365
(4) Inventory Turnover per Year:
Cost of Goods Sold
=
$1,800,000
=
3.68 times per year
Average Inventory
$489,583
Based on Year-End Figures
Based on Monthly Figures
Accounts Receivable
Turnover in Days
Accounts Receivable
Turnover per Year
Inventory Turnover
in Days
Inventory Turnover
per Year
5.70 days
64.00 times per year
76.04 days
4.80 times per year
48.36 days
7.55 times per year
99.28 days
3.68 times per year