Question

Pippin Piping Co. manufactures decorative fabric trims. The companys financial statements follow. Pippin Piping Co. Comparat
2015 $25,800 127,000 80,700 10,000 243,500 576,000 $819,500 2014 $20,500 94,300 56,000 4,600 175,400 540,300 $715,700 Pippin
Additional information Closing stock price Shares outstanding Dividends paid per share 2016 $38 12,000 $1.32 2015 $35 12,000
(c1) Assess Pippins liquidity. Working capital 2014 1 1 2015 2016 1 Current ratio (Round answers to 2 decimal places, e.g. 5
Accounts Receivable turnover (Round answers to 1 decimal places, e.g. 52.7.) 2015 times 2016 times Average collection period
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Answer #1

Answer-1)- Working capital =Current assets- Current liabilities

2014= $175400-$120800 =$54600

2015 =$243500- $93440 = $150060

2016 =$229860- $64120 = $165740

2)- Current Ratio=Current Assets/ Current Liabilities

2014= $175400/$120800 =1.45 times

2015 =$243500/$93440    = 2.61 times

2016 =$229860/$64120 =    3.58 times

3)- Acid-test (Quick ratio)= Current assets-Inventory-Prepaid expenses/Current Liabilities

2014 = ($175400-$56000-$4600)/$120800

= $114800/$120800

= 0.95 times

2015 = ($243500-$80700-$10000)/$93440

= $152800/$93440

= 1.64 times

2016 = ($229860-$60000-$11000)/$64120

= $158860/$64120

= 2.48 times

4)- Accounts receivable turnover ratio = Net credit sales/Average accounts receivable

2015 = $523000/ ($94300+$127000)/2

= $523000/$110650

= 4.7 times

2016 = $576600/ ($127000+$126860)/2

= $576600/$126930

= 4.5 times

5)- Average collection period = 365 days/ Accounts receivable turnover ratio

2015 = 365 days/4.7 times

= 77.7 days

2016= 365 days/4.5 times

= 81.1 days

6)- Inventory Turnover = Cost of goods sold/Average inventory

2015 = $259200/($56000+$80700)/2

= $259200/$68350

= 3.8 times

2016 = $291000/($80700+$60000)/2

= $291000/$70350

= 4.1 times

7)- Average days to sell inventory = Number of days in a year / Inventory turnover ratio

2015 = 365 days/3.8 times

= 96.1 days

2016 = 365 days/4.1 times

= 89.0 days

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