Question

Exercise 18-07 Nordstrom, Inc. operates department stores in numerous states. Suppose selected financial statement data (in millions) for 2020 are presented below. Cash and cash equivalents Accounts receivable (net) Inventory Other current assets Total current assets Total current liabilities End of Year $ 1,289 3,600 1,600 571 $7,060 $3,530 Beginning of Year $ 126 3,400 1,600 531 $5,657 $2,802 For the year, net credit sales were $14,350 million, cost of goods sold was $9,280 million, and net cash provided by operating activities was $1,268 million. Compute the current ratio, accounts receivable turnover, average collection period, inventory turnover, and days in inventory at the end of the current year. (Round answers to 1 decimal place, e.g. 1.6.) Current ratio 2 : 1 Accounts receivable turnover times Average collection period days Inventory turnover times Days in inventory days

Answer 1

Answer)

Calculation of Current Ratio at the end of current year

Current Ratio = Current Assets at the end of current year/ Current Liabilities at the end of current year

                           =$ 7,060 million/$ 3,530 million

                           = 2 times

Therefore the current ratio at the end of current year is 2:1

Calculation of Accounts receivable turnover at the end of current year

Accounts receivable turnover = Net Credit Sales/Average accounts receivable

                                                       = Net Credit Sales/ [(Accounts receivable in the Beginning of year + Accounts receivable at the end of Year)/2]

                                                       =$ 14,350 million/ [($ 3,400 million + $ 3,600 million)/2]

                                                        = $ 14,350 million/ $ 3,500 million

                                                        = 4.1 times

Therefore accounts receivable turnover is 4.1 times.  

Calculation of Average Collection Period at the end of current year

Average Collection Period = 365 days/ Accounts receivable turnover ratio

                                                 = 365 days/ 4.1 times

                                                = 89 days (approximately)

Therefore average collection period is 89 days.

                          

Calculation of Inventory turnover at the end of current year

Inventory turnover = Cost of goods sold /Average Inventory

                                   = Cost of Goods sold/ [(Inventory in the Beginning of year + Inventory at the end of Year)/2]

                                          =$ 9,280 million/ [($ 1,600 million + $ 1,600 million)/2]

                                          = $ 9,280 million/ $ 1,600 million

                                         = 5.8 times

Therefore Inventory turnover is 5.8 times.  

Calculation of Days in inventory at the end of current year

Days in inventory = 365 days/ Inventory turnover

                                 = 365 days/ 5.8 times

                                 = 62.9 days (approximately)

Therefore Days in inventory is 62.9 days.