Take Test: Exam 2 -sU18 X COSecure | htps/utclearm.blackboard.com/webapps/assess
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Question
Take Test: Exam 2 -sU18 X COSecure | htps/utclearm.blackboard.com/webapps/assessment/take/launchjsp?course 1. Consider the following financial statement information for Kirkwood United. Item Year1 Year 2 Year 3 Inventory $10,700 $10,300 $9,900 Accounts receivable $6,500 $7,300 $8,100 Accounts payable $8,200 $6,200 $4,200 Net sales $140,000 Cost of goods sold $80,000 Assume all sales are on credit. How long is the cash cycle? 66.03 days 33.25 days 46.99 days 37.74 days 55.47 days Click Save and Submit to save and submit. Click Save All Answers to save all answersExplanation / Answer
Answer:
Cash Cycle = Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding
Days Inventory Outstanding = 365 * Average Inventory / Cost of Goods Sold
Average Inventory = (10,700 + 10,300) / 2
Average Inventory = $10,500
Days Inventory Outstanding = 365 * 10,500 / 80,000
Days Inventory Outstanding = 47.91 days
Days Sales Outstanding = 365 * Average Accounts Receivable / Net Credit sales
Average Accounts Receivable = (6,500 + 7,300) / 2
Average Accounts Receivable = $6,900
Days Sales Outstanding = 365 * 6,900 / 140,000
Days Sales Outstanding = 17.99 days
Days Payable Outstanding = 365 * Average Accounts Payable / Cost of Goods Sold
Average Accounts Payable = (8,200 + 6,200) / 2
Average Accounts Payable = $7,200
Days Payable Outstanding = 365* 7,200 / 80,000
Days Payable Outstanding = 32.85 days
Cash Cycle = 47.91 + 17.99 – 32.85
Cash Cycle = 33.25 days
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