Use the following balance sheet and income statement for Sullo Inc. to answer th
ID: 2813811 • Letter: U
Question
Use the following balance sheet and income statement for Sullo Inc. to answer the next 5 questions. Hint: Some questions may yield negative answers.
Assets (Millions)
Liabilities and owners equity (Millions)
Cash 4000
Accounts Payable 900
Inventory 600
Accrued operating expense 400
Accounts Receivable 1500
Notes Payable 3500
Fixed assets 6000
Long Term Debt 2000
Shareholders Equity 5300
Total 12100
Total 12100
Income Statement (Millions)
Revenues 7000
COGS 4500
Operating Expenses 900
Depreciation 600
Interest 400
Taxes 500
Net Profit 100
1. Find Sullo's days sales outstanding (DSO). Round to the nearest whole day.
2. Calculate Sullo's DPO. Round to the nearest whole day.
3. How long does Sullo wait from the time an inventory order is received until payment is received? Round intermediate steps and the final answer to the nearest whole day.
4. What is Sullo's cash conversion period (CCP)? Round intermediate steps and your final answer to the nearest whole day.
5. After negotiating with its customers, Sullo was able in decrease its DSO by six days. What will be the resulting change in Sullo's accounts receivable? Round intermediate steps to the nearest whole day and your final answer to the nearest whole dollar.
Assets (Millions)
Liabilities and owners equity (Millions)
Cash 4000
Accounts Payable 900
Inventory 600
Accrued operating expense 400
Accounts Receivable 1500
Notes Payable 3500
Fixed assets 6000
Long Term Debt 2000
Shareholders Equity 5300
Total 12100
Total 12100
Explanation / Answer
1) DSO = (Accounts receivable / Sales) x 365 days = (1500 / 7000) x 365 days = 78 days
2) DPO = (Accounts payable / Cost of goods sold) x 365 days = (900 / 4500) x 365 days = 73 days
3) DIO (Days Inventory outstanding) = (Inventory / Cost of goods sold) x 365 days = (600 / 4500) x 365 days = 49 days
Total time an inventory order is received until payment is received = DSO + DIO = 78 days + 49 days = 127 days
4) CCP = DSO + DIO - DPO = 78 days + 49 days - 73 days = 54 days
5) DSO = (Accounts receivable / Sales) x 365 days
or, (78 - 6) = (Accounts receivable / 7000) x 365
or, Accounts receivable = 7000 x 72 / 365 = 1,381 millions
Change in Accounts Receivable = 1381 - 1500 = - 119
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