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 2021 fiscal year reported the following information ($ in millions): Sales Cost of goods sold $7,300 6,300 The company's balance sheets for 2021 and 2020 included the following information ($ in millions) 2021 2020 Current assets: Accounts receivable, net Inventories $ 726 950 $ 626 862 The statement of cash flows reported bad debt expense for 2021 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, 2021 and 2020, 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 principaly 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 $590 and $440 at During 2021, 2020, and 2019, liquidation of LIFO layers generated income of 57, 58, and $26, respectively. Required: 1. Determine the amount of accounts receivable Inverness wrote off during 2021. (Enter your answer in millions.) 2. Calculate the amount of cash collected from customers during 2021. (Enter your answer in millions.) 3. Calculate what cost of goods sold would have been for 2021 if the company had used average cost to value its entire inventory. 4. Calculate the receivables turnover ratio, the inventory turnover ratio, and the gross profit ratio for 2021. (Round "Receivables turnover ratio" and "Inventory turnover ratio" answers to 2 decimal places. Round "Gross profit ratio answer to nearest percent lle., 0.123 needs to be entered as 12%).) 1. Accounts receivable written off 2. Cash collections 3. Cost of goods sold 4. Receivables tumover ratio 4b. Inventory turnover ratio 4c. Gross proftratio milion milion million times times %

Answer 1

The answer has been presented in the supporting sheet.

Answer Part 1) Account receivable written off =Beginning allowance for uncollectible + bad debt expense - ending allowance for uncollectible = 7+ 8-10 = $ 5 So the correct answer is $5 million Part 2) Cash collection from customers = Beginning Balance + sales - written off-ending balance = 626+7300-5-726 = $ 7195 So the correct answer is $ 7195 million Part 3) Cost of goods sold average costs = LIFO cost of goods sold - increase in inventory due to average costs = 6300 - (590-440) = $ 6150 So the correct answer is $ 6150

25 Part 4) 26 Receivable Turnover Ratio 27 = sales / average inventory 28 = 7300 / ((726+626/2) 29 = 7.03 times 30 31 Inventory turnover ratio 32 = cost of goods sold / average inventory 33 = 6300 / ((950+862)/2) 34 = 6.95 times 35 36 Gross Profit ratio 37 = gross profit / sales *100 38 = (7300-6300)/7300*100 39 = 13.70 % an