CH 16 E. 7 Partial comparative balance sheet and income statement information fo
ID: 2366593 • Letter: C
Question
CH 16 E. 7 Partial comparative balance sheet and income statement information for Smith Company is as follows:
2012 2011
Cash 27,200 20,800
Marketable securities 14,40034,400
Accounts recieevable (Net)89,600 71,200
Inventory 108,800 99,200
Total Current Assets 240,000 225,600
Accounts Payable 80,00056,400
Net Sales645,120441,440
Cost of Goods Sold 435,200406,720
Gross Margin 209,92034,720
In 2010, the year-end balances for Accounts Recievable and Inventory were $64,800 and $102,400, respectively. Accounts Payable was $61,200 in 2010 and is the only current liability. Compute the current ratio, quick ratio, recievable turnover, days' sales uncollected, inventory turnover, days' inventory on hand, payables turnover, and days' payable for each year. (Round computations to one decimal place.) Comment on the change in the company's liquidity position, including its operating cycle and required days of financing from 2011 to 2012.
Explanation / Answer
In 2011
current ratio=current asset/ current liabilty=225600/56400=4.0 times
quick ratio=Liquidity asset/ current liabilty = 225600-99200/56400=2.2 times
recievable turnover=Turnover/Avg Recievable= 441440/68000=6.5 times
days' sales uncollected=365/recievable turnover=365/6.5=56.2Days
inventory turnover=Avg Inventory / Turnover*100 =100800/441440*100=22.8%
days' inventory on hand= 365* inventory turnover ratio =365*22.8%=83.4Days
payables turnover=Turnover/Avg payable=441440/58800=7.5 times
days' payable=365/ payables turnover=365/7.5=48.6 days
In 2012
current ratio=current asset/ current liabilty=240000/80000=3.0 times
quick ratio=Liquidity asset/ current liabilty = 240000-108800/80000=1.6times
recievable turnover=Turnover/Avg Recievable= 645120/80400=8.0 times
days' sales uncollected=365/recievable turnover=365/8.0=45.6Days
inventory turnover=Avg Inventory / Turnover*100 =104000/645120 =16.1%
days' inventory on hand= 365* inventory turnover ratio =365*16.1%=58.8Days
payables turnover=Turnover/Avg payable= 645120/68200=9.5 times
days' payable=365/ payables turnover=365/9.5=38.6 days
Company's current liquidity position as per quick ratio in compare to previous year is decreased as the utilisatuion of liquidity fund is done more smoother than previous year
Company's operating cycle is also improved as there is increase in recievable turnover ratio and decrease in payable turnover raio