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Required information Exercise 13-8 Liquidity analysis and interpretation LO P3 [The following information applies to the...

Required information

Exercise 13-8 Liquidity analysis and interpretation LO P3

[The following information applies to the questions displayed below.]

Simon Companyâ€s year-end balance sheets follow.

At December 31 2017 2016 2015
Assets
Cash $ 26,619 $ 31,115 $ 32,412
Accounts receivable, net 89,000 62,100 53,200
Merchandise inventory 114,500 83,000 57,000
Prepaid expenses 8,572 8,168 3,601
Plant assets, net

217,041

208,489 184,487
Total assets $ 455,732 $ 392,872 $ 330,700
Liabilities and Equity
Accounts payable $ 112,342 $ 65,731 $ 43,216
Long-term notes payable secured by
mortgages on plant assets
84,821 89,457 72,354
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 96,069 75,184 52,630
Total liabilities and equity $ 455,732 $ 392,872 $ 330,700


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

For Year Ended December 31 2017 2016
Sales $ 592,452 $ 467,518
Cost of goods sold $ 361,396 $ 303,887
Other operating expenses 183,660 118,282
Interest expense 10,072 10,753
Income taxes 7,702 7,013
Total costs and expenses 562,830 439,935
Net income $ 29,622 $ 27,583
Earnings per share $ 1.82 $ 1.70

(1) Compute days' sales uncollected.

Days' Sales Uncollected
Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected
/ x = Days' Sales Uncollected
2017: / x = 0 days
2016: / x = 0 days

(2) Compute accounts receivable turnover.

Accounts Receivable Turnover
Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover
/ = Accounts receivable turnover
2017: / = times
2016: / = times

(3) Compute inventory turnover.

Inventory Turnover
Choose Numerator: / Choose Denominator: = Inventory Turnover
/ = Inventory turnover
2017: / = times
2016: / = times

(4) Compute days' sales in inventory.

Days†Sales In Inventory
Choose Numerator: / Choose Denominator: x Days = Days†Sales In Inventory
/ x = Days†sales in inventory
2017: / x = 0 days
2016: / x = 0 days
0 0
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Answer #1

Answer to Requirement 1.

Days’ Sales Uncollected = Average Accounts Receivable / Net Sales * 365

2016:
Average Accounts Receivable = ($53,200 + $62,100) / 2
Average Accounts Receivable = $57,650

Days’ Sales Uncollected = $57,650 / $467,518 * 365
Days’ Sales Uncollected = 45.01 days

2017:
Average Accounts Receivable = ($62,100 + $89,000) / 2
Average Accounts Receivable = $75,550

Days’ Sales Uncollected = $75,550 / $592,452 * 365
Days’ Sales Uncollected = 46.55 days

Answer to Requirement 2.

Accounts Receivable Turnover = Sales / Average Accounts Receivable

2016:
Accounts Receivable Turnover = $467,518 / $57,650
Accounts Receivable Turnover = 8.11 times

2017:
Accounts Receivable Turnover = $592,452 / $75,550
Accounts Receivable Turnover = 7.84 times

Answer to Requirement 3.

Inventory Turnover = Cost of Goods Sold / Average Inventory

2016:
Average Inventory = ($57,000 + $83,000) / 2
Average Inventory = $70,000

Inventory Turnover = $303,887 / $70,000
Inventory Turnover = 4.34 times

2017:
Average Inventory = ($83,000 + $114,500) / 2
Average Inventory = $98,750

Inventory Turnover = $361,396 / $98,750
Inventory Turnover = 3.66 times

Answer to Requirement 4.

Days Sales in Inventory = Average Inventory / Cost of Goods Sold * 365

2016:
Days Sales in Inventory = $70,000 / $303,887 * 365
Days Sales in Inventory = 84.08 days

2017:
Days Sales in Inventory = $98,750 / $361,396 * 365
Days Sales in Inventory = 99.73 days

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