Question

Exercise 17-8 Liquidity analysis and interpretation LO P3

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Simon Company’s year-end balance sheets follow.

At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets 2017 2015 62,200 85,000 10,949 353,647 321,539 90,000 114,000 11,492 $ 35,685 $ 41,712 43,016 58,800 51,000 4,780 276,904 604,824 521,400 434,500 Liabilities and Equity Accounts payable Long-term notes payable secured by $150,60188,117 $57,354 mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity 113,707 162,500 178,016 96,025 162,500 150,861 118,621 119,922 162,500 $ 604,824 521,400 434, 500

The company’s income statements for the years ended December 31, 2017 and 2016, follow. Assume that all sales are on credit:

Exercise 17-8 Part 1

(1) Compute days' sales uncollected.

Exercise 17-8 Part 2

(2) Compute accounts receivable turnover.

Exercise 17-8 Part 3

(3) Compute inventory turnover.

Exercise 17-8 Part 4

(4) Compute days' sales in inventory.

Answer 1

Compute days' sales uncollected in the manner given below: | Choose numerator / Choose denominator X Days = Days' Sales Uncollected Accounts receivable Net sales X 365 = Days' Sales Uncollected 2017 $90,000 $786,271 365 41.78 Days $62,2001/ $620,466 365 = 36.59 Days 2016 Compute accounts receivable turnover, in the manner given below: | A B C E Choose numerator | Choose denominator F G Accounts receivable turnover Accounts receivable turnover 10.33 times 10.26 times Average accounts recivable $76,100/= $60,500/= Net sales 2017 2016 $786,271/ $620,466/ 4

Prepare spreadsheet showing computation of accounts receivable turnover, in the manner given below: B C D Choose numerator Choose denominator F Accounts receivable turnover Accounts receivable turnover Net sales 3 2017 786271 4 2016 620466 Average accounts recivable = =(90000+62200)/2 =(58800+62200)/2 =B3/D3 =B4/D4 Calculate inventory turnover, in the manner given below: A B C D Choose numerator/Choose denominator = Inventory turnover Cost of goods sold / Average inventory 1= Inventory turnover $479,625 / $99,500 4.82 times $403,303/ $68,000 5.93 times 3 2017 4 2016 Prepare the spreadsheet showing calculation of inventory turnover, in the manner given below: G A B C D E F Choose Inventory Choose denominator = numerator turnover Cost of Inventory turnover 2017 479625 I=(114000+85000)/2 =B3/D3 4 2016 403303 /1=(85000+51000)/2 =B4/D4 goods sold l' Average inventory times times

Calculate days sales in inventory, in the manner given below: Choose numerator / Choose denominator | Days = Days' Sales in inventory Ending inventory | Cost of goods sold X 365 = Days' Sales in inventory $114,000 $479,625 365 = 86.76 Days $85,000 $403,303 X 365 = 76.93 Days 2017 2016