Question

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Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	32,935			$	38,498		$	38,545
Accounts receivable, net			89,200				62,800			51,100
Merchandise inventory			114,000				85,000			51,000
Prepaid expenses			10,606				10,106			4,283
Plant assets, net			295,220				270,804			233,072
Total assets		$	541,961			$	467,208		$	378,000
Liabilities and Equity
Accounts payable		$	138,997			$	81,327		$	51,393
Long-term notes payable secured by mortgages on plant assets			104,945				110,682			86,044
Common stock, $10 par value			162,500				162,500			162,500
Retained earnings			135,519				112,699			78,063
Total liabilities and equity		$	541,961			$	467,208		$	378,000

The company’s income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit:

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	704,549					$	555,978
Cost of goods sold	$	429,775					$	361,386
Other operating expenses		218,410						140,662
Interest expense		11,977						12,787
Income tax expense		9,159						8,340
Total costs and expenses					669,321						523,175
Net income				$	35,228					$	32,803
Earnings per share				$	2.17					$	2.02
1.A Compute days' sales uncollected. Days' Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected / x = Days' Sales Uncollected Current Yr: / x = days 1 Yr Ago: / x = days

For each ratio, determine if it improved or worsened in the current year.

	Days' sales uncollected

Improved or Worsen

Answer 1

I Days' Sales Uncollected Choose Denominator: Net Credit Sales $704,549 $555,978 Choose Numerator: Average Accounts Receivable, net $76,000 $56,950 - = X X X X Days Days 365 365 Days' Sales Uncollected Days' Sales Uncollected 39.37 days [($76000 / $704549) x 365 = 39.37 days) 37.39 days [($56950 / $555978) x 365 = 37.39 days] Current Year 1 Year Ago Conclusion: Firm's Days' sales outstanding ratio is WORSEN improved in current year when compared to 1 year ago because it is increased from 37.39 days to 39.37 days which means that the firm collects receivable later in current year than 1 year ago. Workings: Beginning Accounts Receivable Ending Accounts Receivable Average Accounts Receivable Current Year $62,800 $89,200 $76,000 1 Year Ago $51,100 $62,800 $56,950 [($62800 + $89200)/2=$76000; ($51100 + $62800)/2=$56950]