The financial statements for Castile Products, Inc., are given below: Account ba

Question

The financial statements for Castile Products, Inc., are given below:

Account balances at the beginning of the year were: accounts receivable, $160,000; and inventory, $340,000. All sales were on account.

Average collection period = 24.3

Required:

7. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

8. Operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)

Castile Products, Inc.
Balance Sheet
December 31 Assets Current assets: Cash $ 24,000 Accounts receivable, net 210,000 Merchandise inventory 310,000 Prepaid expenses 8,000 Total current assets 552,000 Property and equipment, net 910,000 Total assets $ 1,462,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 210,000 Bonds payable, 12% 300,000 Total liabilities 510,000 Stockholders’ equity: Common stock, $10 par value $ 170,000 Retained earnings 782,000 Total stockholders’ equity 952,000 Total liabilities and stockholders’ equity $ 1,462,000

Explanation / Answer

Answer:

Accounts Receivable Turnover = Sales / Avg.Accounts Receivable

                                            = 2775000 / ( 210000+160000)/2 = 2775000 / 185000 = 15

Average sale period = 365 / Accounts Receivable Turnover = 365 / 15 = 24.33 days

Operating cycle.= Inventory period + Accounts Receivable period = 91.25 days + 24.33 days = 115.58 days

Inventory Turnover = Cost of goods sold / Avg. Inventory = 1300000 / ( 310000+340000)/2

                                                                                 = 1300000 / 325000 = 4

Inventory period = 365 / Inventory T.O = 365 /4 =91.25 Days

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