Question

Comanche Carpets reported the following amounts in its 2018 financial statements. The 2017 figures are given for comparison (Click the icon to view the comparative financial information.) Read the requirements Requirement 1. Calculate Comanche's acid-test ratio for 2018. (Round to two decimals.) Determine whether Comanche's acid-test ratio improved or deteriorated from 2017 to 2018. How does Comanche's acid-test ratio compare with the industry average of 0.80? (Abbreviations used: Cash Cash including cash equivalents: ST invest short-term investments. Round the acid test ratio to two decimal, XXX) Calculate the acid-test ratio for both years. Acid test ratio 2018 2017 Incorr 110)

Answer 1

Answer 1:

Cash +ST invest + Accounts Receivable Current liabilities Acid test ratio 83,000 112,000 = 0.74 2018 2017 92,000 114,000 0.81

Comanche's acid test ratio deteriorated from 0.81 in 2017 to 0.74 in 2018.

Comanche's acid test ratio in 2018 is 0.74 and it is worst as compared industry average of 0.80

Answer 2:

Net Credit sales Average receivable = |Account Receivable turnover ratio 2018 748,800 64,000 = 11.70

Comanche's account receivable turnover ratio is 11.70 and it is better than industry average of 10.

Comanche manages receivable better as compared to industry.

Answer 3:

3657 Account Receivable turnover ratio 1=Days sales in receivable 2018 365 / 11.70 = 31

Comanche's days sales in receivable for 2018 is 31 days. Actual days sales in receivable is slightly worst as compared it its credit term of net 30.