Objective 5: Compute ratios; evaluate turnover, liquidity, and current debt oayi

Question

Objective 5: Compute ratios; evaluate turnover, liquidity, and current debt oaying ability) The financial statements of Family News, Inc., include the following items: arning 2012 2011 Balance shieet Cashtpta$ $3,00 89,000 21,000 80,000 90,000272.00 Short-term investments. i7,000 77,00 vables ct Prepaid expenses8,0006,000 268,000 Total current asscts 245,000 Accounts Payable65,00055,000 90,000 Total current liabilitics 131,000 Income statement: cs mmr$494,000 S502,000 Cost bf goods sold276,000280,000 Net credit sales$494,000$502,000 Requirements 1. Compute the following ratios for 2012 383 424y66 a. Current ratio b. Quick (acid test) ratio c. Receivable collection period d. Inventory resident period e. Payable outstanding period f. Cash conversion cycle 

Explanation / Answer

a Current Ratio                                                      1.87 :1 b Acid Test Ratio(Quick Ratio)                                                      1.12 :1 c Receivable collection period                                                          58 Days d Inventory resistent period                                                       107 Days e Payable outstanding Period                                                          74 Days Workings a Current Ratio 245000/131000 Current assets / Current liabilities                                                      1.87 (245000-90000-8000)/131000 b Acid Test Ratio(Quick Ratio)                                                      1.12 Total Current Asset -Inventory - Prepaid expenses / Current liabilities c Receivable collection period =365/6.29 365 / Receivable Turn over                                                          58 Accounts Receivable Turn Over Sales / Avg Acount Receivables 494000/(77000+80000)/2                                                                                                                     6.29 d Inventory resistent period 365/3.41 365 / inventory Turn over                                                       107 Inventory Turnover Cost of Goods Sold / Avg Inventory 276000/(90000+72000)/2 3.41 e Payable outstanding Period 365/Annual Purchases × average trade payables Annual Purchase = Cost of goods sold +Closing Inventory -Opening Inventory = 276000 + 90000-72000 = 294000 So 365/294000 * (65000+55000)/2 74.49 As per Chegg Guidelines We need to answer first 4 question but I done 5 for u… Please add other question again…we will solve it

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