Question

The Dlabay Company had a quick ratio of 1.4, a current ratio of 2.75, an inventory turnover of 6 times, total current assets of $775000, and cash plus marketable securities of $110000 in 2015. What were Dlabay's annual sales and its ACP (average collection period) for that year? Assume 360 days per year. Round your intermediate calculations to the nearest cent (i.e., two decimal places). Present/round your answers to two decimal places (include cents even if the value is 0), but do not include $ signs or commas.

Answer 1

Answer:

Annual sale is $2,282,728.80 and ACP is 44.87 days

Explanation:

Since the annual sales are not given, so first we have to compute the current liabilities amount, then inventory amount, after that, only the sales amount could be found

So, the current liabilities = Current assets ÷ current ratio

                                         =  $775,000 ÷ 2.75

                                         = $281,818  

Now the quick ratio = (Current assets - inventory) ÷ current liabilities

        1.4 times          = ($775,000 - inventory) ÷ $281,818  

$394545.20 = $775,000 - inventory

So, inventory = $380,454.80

Now, the inventory turnover equals to

Inventory turnover ratio = (Turnover ÷ average inventory)

6 times = Annual sales ÷ 380454.80

So, annual sales = $2,282,728.80

The computation of the ACP is shown below:

= (Account receivable ÷ credit sales) × 360 days

Since account receivables is not given so first, we have to calculate it which equals to

= Current assets - cash - inventory  

=  $775000 - $110,000 - $380,454.80

= $284545.20

Now put these values to the above formula  

So, the value would equal to

= ( $284545.20 ÷ $2,282,728.80) × 360 days

= 44.87 days