The 2015 and 2016 balance sheets for Shadow Industries showed Cash of $7,600 and
ID: 2589629 • Letter: T
Question
The 2015 and 2016 balance sheets for Shadow Industries showed Cash of $7,600 and $9,100 respectively, Accounts Receivable of $16,000 and $18,000, respectively, Inventory of $11,000 and $8,000, respectively, and Accounts Payable of $5,300 and $7,300, respectively. Its 2016 Income Statement showed Net Sales of $103,000, Cost of Goods Sold of $65,000, and Net Income of $30,000. The cash conversion cycle for 2016 was: (Assume all Sales are credit sales. Round any intermediary calculations to two decimal places and your final answer to the nearest day.)
A. 42 days.
B. 78 days.
C. 149 days.
D. 28 days.
TNT Guitar's sales were $13,100 in 2016 and $11,600 in 2015. The percentage change in TNT's sales from 2015 to 2016 was: (Round your final answer to two decimal places, X.XX%.)
A. +12.93%.
B. -11.45%.
C. -12.93%.
D. +11.45%.
The sales of Sassycat, Inc. for the years 2014, 2015, and 2016 are $36,000, $59,000 and $76,000, respectively. If 2014 is the base year, the trend percentage for 2015 is: (Round your final answer to two decimal places, X.XX%.)
A. 163.89%.
B. 61.02%.
C. 128.81%.
D. 211.11%.
Everyday business activities are reported in the Income Statement's:
A. continuing operations section.
B. extraordinary items section.
C. continuing and discontinued operations section.
D. discontinued operations section.
Explanation / Answer
1) Cash conversion cycle measures the numbers of days that company takes to convert its inventory and accounts receivables into cash after paying to its creditors. Cash conversion cycle has 3 parts : Days inventory outstanding, days accounts receivables outstanding and days accounts payable are outstanding.
Cash conversion cycle = Days inventory outstanding+days accounts receivables outstanding -days accounts payable are outstanding.
Days inventory outstanding: It measures how long cash is blocked in inventory before it is sold and cash is collected from debtors. It is calculated by dividing average inventory with cost of goods sold per day. It is assumed that a year has 365 days.
Days inventory outstanding = average inventory / cost of goods sold per day
Days inventory outstanding = [($11,000+$8,000)/2] / ($65,000/365)
Days inventory outstanding = 53.35 days
Days accounts receivables outstanding measures number days to collect cash from accounts receivables. It is calculated by dividing average accounts receivables with sales per day.
Days accounts receivables outstanding = average accounts receivables / sales per day.
Days accounts receivables outstanding = [($16,000+$18,000)/2] / ($103,000/365)
Days accounts receivables outstanding = 60.24 days
Days accounts payable outstanding measures number of days company takes to pay its creditors.
It is calculated by dividing average accounts payables with cost of goods sold per day.
Days accounts payables outstanding = average accounts payables/ cost of goods sold per day.
Days accounts payables outstanding = [($5,300+$7,300)/2] / ($65,000/365)
Days accounts payables outstanding = 35.38 days
Cash conversion cycle = 53.35 + 60.24 -35.38 days
Cash conversion cycle = 78.21 days
Therefore, cash conversion cycle is of 78 days.
2) Percentage change in sales is calculated by dividing the difference in sales of two years by sales of previous year.
Percentage change in sales = [(Sales of current year - Sales of previous year) / Sales of previous year] *100
Percentage change in sales = [($13,100 - $11,600) / $11,600] * 100
Percentage change in sales = +12.93%
So, percentage increase in sales in year 2016 is 12.93% as compared to year 2015.
3) Trend percentage is calculated by dividing current year value by base year value and multiplied b 100. so,
Trend percentage for 2015 = (Sales Value for 2015 / Sales value for 2014 as base year )*100
Trend percentage for 2015 = ($59,000 / $36,000)*100
Trend percentage for 2015 = 163.89%
So, trend percentage for 2015 is 163.89%.
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