Lendell Company has these comparative balance sheet data: LENDELL COMPANY Balanc

Question

Lendell Company has these comparative balance sheet data:

LENDELL COMPANY

Balance Sheets

December 31 2019

2018 Cash $15,000 $30,000 Accounts receivable (net) 70,000 60,000 Inventory 60,000 50,000 Plant assets (net) 200,000 180,000 $345,000 $320,000 Accounts payable $50,000 $60,000 Mortgage payable (15%) 100,000 100,000 Common stock, $10 par 140,000 120,000 Retained earnings 55,000 40,000 $345,000 $320,000

Additional information for 2019:

1.Net income was $25,000.

2.Sales on account were $375,000. Sales returns and allowances amounted to $25,000.

3.Cost of goods sold was $198,000.

4.Net cash provided by operating activities was $48,000.

5.Capital expenditures were $25,000, and cash dividends were $10,000.

Instructions

Compute the following ratios at December 31, 2019.

(a) Current ratio.

(b) Accounts receivable turnover.

(c) Average collection period.

(d) Inventory turnover.

(e) Days in inventory.

Please include work, I am trying to understand this better

Lendell Company has these comparative balance sheet data: LENDELL COMPANY Balance Sheets December 31 2019 2018 Cash Accounts receivable (net) Inventory Plant assets (net) S 15,000 S 30,000 60.000 50,000 200,000 180,000 S345,000 S320,000 S 50,000 S 60,000 100,000 140.000 120.000 40.000 S345,000 S320,000 70.000 60.000 Accounts payable Mortgage payable (15%) Common stock, $10 par Retained earnings 100,000 55,000 Additional information for 2019 1. Net in 2. Sales on account were $375,000. Sales returns and allowances amounted to $25,000 3. Cost of goods sold was $198,000 4. Net cash provided by operating activities was $48,000 5. Capital expenditures were S25,000, and cash dividends were S10,000 come was $25,000 Instructions Compute the following ratios at December 31, 2019 (a) (b) (c) (d) (e) Current ratio Accounts receivable turnover Average collection perio Inventory turnover Days in inventory

Explanation / Answer

(a) Current Ratio

Current ratio= Current Asset/ Current Libalilty

Current ratio = (Cash + Account Receviable + Inventrory)/Account Payable

  Current ratio = ($15,000 + $70,000 + $60,000)/$50,000

Current ratio = 2.9 : 1

(b) Accounts Receivable turnover

Accounts Receivable turnover = Net Sales/ Average Receviable

Accounts Receivable turnover = (Gross Sale - Sales return)/ [(op receviable + Cl receviable)/2]

Accounts Receivable turnover = ($375,000 - $25,000)/[($60,000 + $70,000)/2]

Accounts Receivable turnover = 5.38 : 1

(c) Average Collection period

  Average Collection period = Number of working days/ Accounts Receivable Turnover

  Average Collection period = 360/5.38

  Average Collection period = 67

(d) Inventory turnover ratio

Inventory turnover ratio = Cost of goods sold/Average Inventory

Inventory turnover ratio = $198,000/($50,000 + $60,000)/2

Inventory turnover ratio = 3.6 : 1

(e) Days in Inventory

Days in Inventory = Number of working days/ Inventory Turnover ratio

Days in Inventory = 360/3.6

Days in Inventory =100

NOTE : Assumed 360 days in a year

  

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