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SHOW ALL WORK Selected balances from a company\'s financial statements are shown

ID: 2354260 • Letter: S

Question

SHOW ALL WORK

Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012:
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
                                Dec 31 2012      Dec 31 2011   For Yr 2012

  Accounts Receivable       $27,000      $24,000

Merchandise Inventory        25,000        20,000

Total Assets                    296,000      244,000

Accounts Payable               26,000        32,000

Salaries Payable                   3,000         4,400

Sales (ALL ON CREDIT)                                      $312,000
Costs of Goods sold                                             165,000

Salaries Expense                                                    48,000

Other expenses                                                      75,000

Net income                                                             24,000

    

Explanation / Answer

a. accounts receivable turnover = net sales/average accounts receivable = 312,000/25,500 = 12.2 times (note: average AR is beginning AR plus ending AR divided by two) b. inventory turnover = cost of goods sold/average inventory = 165,000/22,500 = 7.3 times (note: average inventory is begining inventory plus ending inventory divided by two) c. Days' sales uncollected = accounts receivable /net sales x 365 = 27,000/312,000 x 365 = 31.6 days d. days sales in inventory = ending inventory/cost of goods sold x 365 = 25,000/165,000 x 365 = 55.3 days e. profit margin = net income/net sales = 24,000/312,000 = 0.077 or 7.7% f. return on total assets = net income/average total assets = 24,000/270,000 = 0.089 or 8.9% (note average total assets is beginning assets plus endign assets divided by two)