Question

Mansfield Office Furniture Store reported the following selected items at December 31, 2019 (previous year - 2018 - amounts are also given as needed): $ 50,000 75,000 63,000 55,000 375,000 Cash Accounts Receivable, net: Dec. 31, 2019 Dec. 31, 2018 Accounts Payable Cost of Goods Sold Merchandise Inventory Dec 31, 2019 Dec 31, 2018 Net Credit Sales Revenue Long-Term Assets Long-Term Liabilities Other Current Assets Other Current Liabilities Short-term Investments 240,000 220,000 820,000 320,000 240,000 135,000 125,000 80,000 Compute Mansfield's (a) acid-test ratio; (b) accounts receivable turnover ratio (round to 2 decimal places); and (c) days' sales in receivables for 2019 (round to the nearest day). Show your computations.

Answer 1

Ans.	*Calculations for total current assets and current liabilities:
	Assets:	Amount	Liabilities:	Amount
	Cash	$50,000	Accounts payable	$55,000
	Accounts receivables	$75,000	Other current liabilities	$125,000
	Merchandise inventory	$240,000
	Short term investments	$80,000
	Other current assets	$135,000
	Total current assets (a)	$580,000	Total current liabilities (a)	$180,000
Ans. A	Acid test ratio   =   (Total current assets - Merchandise inventory) / Total current liabilities
		($580,000 - $240,000) / $180,000
		$340,000 / $180,000
		1.89 : 1
Ans. B	Accounts receivable turnover = Net credit sales / Average accounts receivables
	$820,000 / $69,000
	11.88	times
	*Average receivables = (Beginning receivables + Ending receivables) / 2
	($63,000 + $75,000) / 2
	$69,000
Ans. C	Days sales in receivables = No. of days in year / Receivable turnover ratio
	365 / 11.88
	31	days