Question

Required information [The following information applies to the questions displayed below.] Simon Company's year-end balance sheets follow. Current Yr 1 Yr Ago 2 Yrs Ago At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 31,800 89,500 112,500 10,700 278,500 $ 523,000 $ 35,625 $ 37,800 62,500 50,200 82,500 54,000 9,375 5,000 255,000 230,500 $ 445,000 5 377,500 $ 129,900 $ 75,250 $ 51,250 98,500 163,500 131,100 $ 523,000 101,500 83,500 163,500 163,500 104,750 79,250 $ 445,000 $ 377,500 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 Sales Cost of goods sold Other operating expenses Current Yr $ 673,500 $ 411,225 209.550 1 Yr Ago $ 532,000 $ 345,500 134.980

Answer 1

Solution:

Day's sales Inventory

	Choose Numerator	/	Choose denominator	x	Days	=	Days' sales in Inventory
	Ending inventory	/	Cost of goods sold	x	365	=	Days' sales in inventory
Current year	112,500	/	411,225	x	365	=	99.85 days
1 year ago	82,500	/	345,500	x	365	=	87.156 days

Day's sales in inventory

Worsened

Explanation:

The days sales in inventory may be worsened because a small number of days sales in inventory indicates that a company is more efficient at selling off its inventory, while a large number indicated that it may have invested too mmuch in inventory and may even have absolete inventory on hand.