Question

operates department stores in numerous states. Suppose selected financial statement data (in millions) for 2020 are presented below. End of Year Beginning of Year Cash and cash equivalents $ 770 $ 69 Accounts receivable (net) 1,950 1,880 Inventory 810 860 Other current assets 590 331 Total current assets $4,120 $3,140 Total current liabilities $2,030 $1,640 For the year, net credit sales were $8,258 million, cost of goods sold was $5,328 million, and net cash provided by operating activities was $1,251 million. Compute the current ratio, accounts receivable turnover, average collection period, inventory turnover and days in inventory at the end of the current year. (Round current ratio to 2 decimal places, e.g. 1.83 and all other answers to 1 decimal place, e.g. 1.8. Use 365 days for calculation.) Current ratio :1 Accounts receivable turnover times Average collection period days Inventory turnover times Days in inventory days

Answer 1

Answer and Explanation:

The formulas and calculations are shown below:  

1. Current ratio = Total Current assets ÷ total current liabilities  

= $4,120 ÷ $2,030

= 2.03 times

2. Account receivable turnover

= Net credit sales ÷ Average accounts receivable  

where,  

Net credit sales is $8,258 million

And, the Average accounts receivable would be  

= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2  

= ($1,880 + $1,950) ÷ 2  

= $1,915

So, the accounts receivable turnover ratio would be  

= $8,258 ÷ $1,915

= 4.3 times

3.  Average collection period is  

= Total number of days in a year ÷ account receivable turnover ratio

= 365 days ÷ 4.31 times

= 84.6 days

4. Inventory turnover ratio =

= Cost of goods sold ÷ average inventory

where,  

Average inventory = (Opening balance of inventory + ending balance of inventory) ÷ 2

= ($860 + $810) ÷ 2

= $835 million

And, the cost of good sold is $5,328 million  

Now put these values to the above formula  

So, the answer would be equal to  

= $5,328 million ÷ $835 million

= 6.4 times

5. Days in inventory  

= Total number of days in a year ÷ inventory turnover ratio

= 365 days ÷ 6.38 times

= 57.2 days