P 6-15 The following financial data were taken from the annual financial stateme

Question

P 6-15 The following financial data were taken from the annual financial statements of Smith Corporation: 2009 2010 2011 Current assets $ 450,000 $ 400,000 $ 500,000 Current liabilities 390,000 300,000 340,000 Sales 1,450,000 1,500,000 1,400,000 Cost of goods sold 1,180,000 1,020,000 1,120,000 Inventory 280,000 200,000 250,000 Accounts receivable 120,000 110,000

what is

1. Working capital 2. Current ratio 3. Acid-test ratio 4. Accounts receivable turnover 5. Merchandise inventory turnover 6. Inventory turnover in days

Explanation / Answer

a. Based on the data, calculate the following for 2008 and 2009:
1. Working capital = Current Assets - Current Liabilities
2. Current ratio = Current Assets / Current Liabilities
3. Acid-test ratio = (Current Assets - Inventory) / Current Liabilities
4. Accounts receivable turnover = Net Credit Sales / Average Accounts Receivable
5. Merchandise inventory turnover = Sales / Inventory
6. Inventory turnover in days = 365 / (Sales / Inventory)

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