Question

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 $ 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: 506 1 YEAR, CO For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income tax expense Total costs and expenses Net income Earnings per share Current Yr $673,500 $ 411,225 209,550 12,100 9,525 642,400 $ 31,100 $ 1.90 1 Yr Ago $ 532,000 $345,500 134,980 13,300 8,845 502,625 $ 29,375 $ 1.80 Compute days' sales uncollected. For each ratio, determine if it improved or worsened in the current year.

Answer 1

>> Average Accounts receivable for current year = ( $ 89,500 + $ 62,500 ) / 2 = $ 76,000.

>> Average Accounts receivable for 1 year Ago = ( $ 50,200 + $ 62,500 ) / 2 = $ 56,350.

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>> Days in sales Uncollected = ( Average Accounts receivable / Sales ) * 365 .

>> Days in sales Uncollected for current year = ( $ 76,000 / 673,500 ) * 365 = 41.19 Days.

>> Days in sales Uncollected for 1 year Ago = ( $ 56,350 / 532,000 ) * 365 = 38.66 Days.

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>> Accounts receivable turnover = Sales / Average Accounts Receivable.

>> Accounts receivable turnover for current year = $ 673,500 / $ 76,000 = 8.862 times

>> Accounts receivable turnover for 1 year Ago = $ 532,000 / $ 56,350 = 9.44 times.

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