Computation and evaluation of activity ratios . The following data relate to Ala
ID: 2377397 • Letter: C
Question
Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:
20X5
20X4
Net credit sales
$832,000
$760,000
Cost of goods sold
440,000
350,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
180,000
140,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
20X5
20X4
Net credit sales
$832,000
$760,000
Cost of goods sold
440,000
350,000
Cash, Dec. 31
125,000
110,000
Average Accounts receivable
180,000
140,000
Average Inventory
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
Explanation / Answer
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
$832,000 / 160,000* = 5.20
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
$440,000 / 60,000** = 7.33
*[($180,000 + 140,000) / 2 = $160,000]
**( $70,000 + 50,000) / 2 = 60,000]
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