The following selected information is taken from the ?nancial statements of Arnn
ID: 2631198 • Letter: T
Question
The following selected information is taken from the ?nancial statements of Arnn Company for its most recent year of operations: Beginning balances: Inventory $200,000 Accounts receivable 300,000 Ending balances: Inventory $250,000 Accounts receivable 400,000 Cash 100,000 Marketable securities (short-term) 200,000 Prepaid expenses 50,000 Accounts payable 175,000 Taxes payable 85,000 Wages payable 90,000 Short-term loans payable 50,000 During the year, Arnn had net sales of $2.45 million. The cost of goods sold was $1.3 million. Required: Note: Round all answers to two decimal places. 1. Compute the current ratio. 2. Compute the quick or acid-test ratio. 3. Compute the accounts receivable turnover ratio. 4. Compute the accounts receivable turnover in days. 5. Compute the inventory turnover ratio. 6. Compute the inventory turnover in days.
Explanation / Answer
1. current Ratio = Current Assets / Current Liabilities
= $ 250000 + 400000 +100000 +200000 +50000 + / (175000 + 85000 +90000 + 50000)
= 1000000 / 400000 = 2.5 Times
2. Quick Ratio = Current Assets - Inventory - Advances - Prepayments ) / Current Liabilities
= 1000000 - 250000 - 50000 ) / 400000 = 1.75 Times
3.Account recievable turnover ratio = Net credit sales / Average account recievables
= 2450000 / (300000+400000) /2 = 2450000 / 350000 = 7
4. Account rec turnover (days) = 365/7 = 52.1428 = 52 Days
5.Inventory turnover ratio = Cost of goods sold / average inventory
= 1300000 / (200000+250000)/2 = 1300000 / 225000 = 5.77
6.Inventory turnover indays = 365 /5.77 = 63.258 days = 63 days
Thanks
(Chirag Nagpal)