1) The 2007 and 2008 balance sheets for Alan Jack and Sons showed net accounts r
ID: 2445486 • Letter: 1
Question
1)
The 2007 and 2008 balance sheets for Alan Jack and Sons showed net accounts receivable of $10,000 and $14,000, respectively, and inventory of $8,000 and $6,000, respectively. Their 2008 income statement showed net sales of $109,500 and cost of goods sold of $70,000. Compute the following ratios for 2008:
1. Accounts receivable turnover.
2. Days' sales in receivables.
3. Inventory turnover.
2)
In addition to the information from above, assume that cash on the 2008 balance sheet was $20,000 and current liabilities totaled $24,000. Compute the following ratios for 2008:
1. Current ratio
2. Quick ratio
Explanation / Answer
Accounts Receivable turnover = Net sales / [(opening receivable+ closing received)/2]
= 109500/ [(10000+14000)/2]
= 9.125 times
Days sales in receivable = 365/ accounts receivable turnover
= 365/ 9.125 = 40 days
3. Inventory Turnover = Cost of goods sold / [ (opening inventory+ closing inventory )/2]
=70000/ [ (8000+6000)/2]
= 10 times
Current ratio = Current asset/ current liablity
= cash+ accounts receivable + inventory/ current liabilty
= (20000+ 14000+6000)/ 24000 = 1.67 times
Quick ratio = Current assets - Inventory / current liabilities = 40000-6000/ 24000 = 1.42 times
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