Excerpts from Candle Corporation\'s most recent balance sheet (in thousands of d
ID: 2595092 • Letter: E
Question
Excerpts from Candle Corporation's most recent balance sheet (in thousands of dollars) appear below:
Sales on account during the year totaled $1,350 thousand. Cost of goods sold was $950 thousand.
Required:
Compute the following for Year 2:
a. Working capital. (Enter your answer in thousands of dollars, i.e., 100,000 should be entered as 100.)
b. Current ratio. (Round your answer to 2 decimal places.)
c. Acid-test (quick) ratio. (Round your answer to 2 decimal places.)
d. Accounts receivable turnover. (Round your answer to 2 decimal places.)
e. Average collection period. (Use 365 days in a year. Round your intermediate calculations to 2 decimals places and your final answer to 1 decimal place.)
f. Inventory turnover. (Round your answer to 2 decimal places.)
g. Average sale period. (Use 365 days in a year. Round your intermediate calculations to 2 decimals places and your final answer to 1 decimal place.)
Year 2 Year 1 Current assets: Cash $ 190 $ 100 Accounts receivable, net 220 220 Inventory 170 160 Prepaid expenses 120 120 Total current assets $ 700 $ 600 Current liabilities: Accounts payable $ 230 $ 210 Accrued liabilities 60 60 Notes payable, short term 120 110 Total current liabilities $ 410 $ 380Explanation / Answer
a. Working capital = Current assets - Current liability = $700 - $410 = $290
b. Current ratio = Current assets / Current liability = $700 / $410 = 1.71 times
c. Acid test ratio = (Current assets - Inventory - Prepaid expenses) / Current liability
= ($700 - 170 - 120) / $410 = 1.00 time
d. Accounts receivable turnover = Credit sales / Average account receivable
= $1,350 / {(220 + 220) / 2} = 6.14 times
e. Average collection period = 365 / accounts receivable turnover = 365 / 6.14 = 59.5 days
f. Inventory turnover = Cost of goods sold / Average inventory
= $950 / {(170+160)/2} = 5.76
g. Average sale period = 365 / Inventory turnover = 365 / 5.76 = 63.4 days
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