Pettijohn Inc. The balance sheet and income statement shown below are for Pettij
ID: 420944 • Letter: P
Question
Pettijohn Inc.
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
$42,000.0
$42,000.0
$ 1,133.0
Refer to the data for Pettijohn Inc. What is the firm's days sales outstanding? Assume a 360-day year for this calculation.
$42,000.0
Liabilities and Equity Accounts payable $ 7,980.0 Notes payable 5,880.0 Accruals 4,620.0 Total current liabilities $18,480.0 Long-term bonds 10,920.0 Total liabilities $29,400.0 Common stock 3,360.0 Retained earnings 9,240.0 Total common equity $12,600.0 Total liabilities and equity$42,000.0
Income Statement (Millions of $) 2016 Net sales $58,800.0 Operating costs except depreciation $54,978.0 Depreciation $ 1,029.0 Earnings bef int and taxes (EBIT) $ 2,793.0 Less interest 1,050.0 Earnings before taxes (EBT) $ 1,743.0 Taxes $ 610.1 Net income$ 1,133.0
Other data: Shares outstanding (millions) 175.00 Common dividends $ 509.83 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $77.69Explanation / Answer
Solution:
Days sales outstanding (DSO) is calculated as;
DSO = (Accounts Receivable / Total Credit Sales in Accounting Period) x Days in Accounting Period
From the given balance sheet and income statement of Pettijohn Inc., the required values can be deduced,
Accounts Receivable = $9,660
Total Credit Sales = $58,800
Days in Accounting Period = 360 days
Putting given values in the above formula, we get;
DSO = (9660 / 58800) x 360
Days sales outstanding (DSO) = 59.14
Answer: (C) 59.14
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