Question

Inverness Steel Corporation is a producer of flat-rolled carbon, stainless and electrical steels, and tubular products. The company's income statement for the 2018 fiscal year reported the following information ($ in millions):

Sales	$	6,255
Cost of goods sold		5,190

The company's balance sheets for 2018 and 2017 included the following information ($ in millions):

	2018			2017
Current assets:
Accounts receivable, net	$	703		$	583
Inventories		880			808

The statement of cash flows reported bad debt expense for 2018 of $8 million. The summary of significant accounting policies included the following notes ($ in millions):

Accounts Receivable (in part)
The allowance for uncollectible accounts was $10 and $7 at December 31, 2018 and 2017, respectively. All sales are on credit.

Inventories
Inventories are valued at the lower of cost or market. The cost of the majority of inventories is measured using the last in, first out (LIFO) method. Other inventories are measured principally at average cost and consist mostly of foreign inventories and certain raw materials. If the entire inventory had been valued on an average cost basis, inventory would have been higher by $480 and $350 at the end of 2018 and 2017, respectively.
During 2018, 2017, and 2016, liquidation of LIFO layers generated income of $6, $7, and $25, respectively.

Required:
1. Determine the amount of accounts receivable Inverness wrote off during 2018. (Enter your answer in millions.)
2. Calculate the amount of cash collected from customers during 2018. (Enter your answer in millions.)
3. Calculate what cost of goods sold would have been for 2018 if the company had used average cost to value its entire inventory. (Enter your answer in millions.)
4. Calculate the receivables turnover ratio, the inventory turnover ratio, and the gross profit ratio for 2018. (Round "Receivables turnover ratio" and "Inventory turnover ratio" answers to 2 decimal places. Round "Gross profit ratio" answer to nearest percent (i.e., 0.123 needs to be entered as 12%).)

Answer 1

Amount of accounts receivable wrote off=Beginning balance in allowance +bad debt expense-ending balance in allowance Amount of accounts receivable wrote off=7+8-10=5 million Cash collections=Beginning gross receivable +credit sales - write off - ending gross receivable = [583+7] +6255 - 5 - [703+10] = 6127 COGS = 5190 - [480-350] = 5060

4a) Receivable turnover ratio=sales/ Average receivable = 6255/[(703+583)/2] =9.73 times 4b) Inventory turnover ratio=cost of goods sold /average inventory = 5190 /[(880+808)/2] = 6.14 times 4c) Gross profit ratio = [sales- COGS]/sales = ([6255-5190]/6255)*100 =17.03%