Average Cost 118.68 sHoW sOLUTION (e) Ratio Analysis Zipper Corporation reported

Question

Average Cost 118.68 sHoW sOLUTION (e) Ratio Analysis Zipper Corporation reported the following condensed income statement for 2015 Sales Cost of goods sold Gross profit Less expenses Net income before taxes $300,000 Less income taxes Net income after taxes $6,00000 4,200,000 $1,800,000 -1,500,000 120,000 $180,000 Assume the following Average inventory Average accounts receivable $1/2000 Average accounts payable$300,000 $700,000 (Use 365 days a year) Compute the following: (Round answers to 2 decimal places, e.g. 52.75.) nventory turnover 6 times times days days days Accounts receivable turnover verage number of days to sell an item Average number of days to collect an account receivable Number of days in operating cycle (f) Prepare Bank Reconciliation The parts of this question must be completed in order. This part will be available when you ce

Explanation / Answer

Solution: Inventory turnover 6 times Accounts receivable turnover 5 times Average number of days to sell an item 60.83 days Average number of days to collect an account receivable 73 days Number of days in operating cycle 133.83 days Working Notes: 1st Inventory turnover 6 times Inventory turnover = Cost of goods sold / Average inventory =4,200,000/700,000 =6.00 2nd Accounts receivable turnover 5 times Accounts receivable turnover = Sales / Average Accounts Receivable =6,000,000/1,200,000 = 5 times 3rd Average number of days to sell an item 60.83 days Average number of days to sell an item = Days in a year / Inventory turn over ratio =365/6 =60.83333 days =60.83 days Inventory turnover = 6 times used from above 4th Average number of days to collect an account receivable 73 days Average number of days to collect an account receivable =Days in a year /Accounts receivable turnover ratio Accounts receivable turnover = 5 times Average number of days to collect an account receivable =Days in a year /Accounts receivable turnover ratio =365/5 =73 days 5th Number of days in operating cycle 133.83 days Operating cycle =Average number of days to sell an item + Average number of days to collect an account receivable Operating cycle = 60.83 + 73 = 133.83 it can also be calculated directly with formula Operating cycle = (365 x Average Inventory /Cost of goods sold) + (365 x Average Accounts Receivable /Sales) = (365 x 700,000 /4,200,000) + (365 x 1,200,000/6,000,000) = 60.833333 + 73 = 133.83 days Please feel free to ask if anything about above solution in comment section of the question.

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