Canadian Bacon Inc. financial statements are presented in the table below. Based
ID: 2727802 • Letter: C
Question
Canadian Bacon Inc. financial statements are presented in the table below.
Based on the information in the table, and using a 365-day year, calculate Average Day’s Purchases.
Round the answers to two decimal places
Balance Sheet December 31, 2012
Cash and marketable securities
$198,000
Accounts payable
$288,000
Accounts receivable
$469,000
Notes payable
$65,000
Inventories
$577,000
Accrued expenses
$84,000
Prepaid expenses
$15,700
Total current liabilities
$437,000
Total current assets
$1,259,700
Long-term debt
$237,000
Gross fixed assets
$1,954,000
Par value and paid-in-capital
$199,000
Less: accumulated depreciation
$476,000
Retained Earnings
$1,864,700
Net fixed assets
$1,478,000
Common Equity
2,063,700
Total assets
$2,737,700
Total liabilities and owner’s equity
$2,737,700
Income Statement, Year of 2012
Net sales (all credit)
$7,546,600.00
Less: Cost of goods sold
$6,112,746.00
Selling and administrative expenses
$349,000.00
Depreciation expense
$145,000.00
EBIT
$939,854.00
Interest expense
$49,500.00
Earnings before taxes
$890,354.00
Income taxes
$356,141.60
Net income
$534,212.40
Cash and marketable securities
$198,000
Accounts payable
$288,000
Accounts receivable
$469,000
Notes payable
$65,000
Inventories
$577,000
Accrued expenses
$84,000
Prepaid expenses
$15,700
Total current liabilities
$437,000
Total current assets
$1,259,700
Long-term debt
$237,000
Gross fixed assets
$1,954,000
Par value and paid-in-capital
$199,000
Less: accumulated depreciation
$476,000
Retained Earnings
$1,864,700
Net fixed assets
$1,478,000
Common Equity
2,063,700
Total assets
$2,737,700
Total liabilities and owner’s equity
$2,737,700
Explanation / Answer
Cash Conversion cycle = Days inventory outstanding + Days sales outstanding - Days Payable outstanding
1) Days inventory outstanding = 365 * Inventory / Cost of sales
= 365 * 577000 / 6112746
= 34.45 Days
2) Days Sales oustanding = 365 * Account receivable / Net Credit Sales
= 365 * 469000 / 7546600
= 22.68 Days
3) Days payable oustanding = 365 * Accounts payable / Cost of sales
= 365 * 288000 / 6112746
= 17.20 Days (approx)
Accordingly, Cash Conversion cycle = 34.45 + 22.68 - 17.20 = 39.93 Days
Conclusion:- Cash conversion cycle = 39.93 Days [40 Days approximately].
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