Question

Markus Company’s common stock sold for $3.75 per share at the end of this year. The company paid a common stock dividend of $0.60 per share this year. It also provided the following data excerpts from this year’s financial statements:     

	Ending Balance		Beginning Balance
Cash	$	41,000	$	36,200
Accounts receivable	$	74,000	$	58,700
Inventory	$	64,900	$	74,000
Current assets	$	179,900	$	168,900
Total assets	$	590,000	$	624,000
Current liabilities	$	70,500	$	63,000
Total liabilities	$	160,000	$	144,000
Common stock, $1 par value	$	139,000	$	139,000
Total stockholders’ equity	$	430,000	$	480,000
Total liabilities and stockholders’ equity	$	590,000	$	624,000

     

	This Year
Sales (all on account)	$	865,000
Cost of goods sold	$	501,700
Gross margin	$	363,300
Net operating income	$	206,250
Interest expense	$	11,000
Net income	$	136,675

rev: 05_25_2017_QC_CS-89969

11. What is the company’s operating cycle? (Round your intermediate and final answers to 2 decimal places.)      

Answer 1

Company’s Operating Cycle

Average Collection Period = Average Accounts Receivables / Credit sales per day

= [($74,000 + $58,700)/2] / [$865,000 / 365 Days]

= [$132,700/2] / $2,369.86 per day

= $66,350 / $2,369.86 per day

= 28.00 Days

Days sales in Inventory = Average Inventory / Cost of goods sold per day

= [($64,900 + $74,000)/2] / [$501,700 / 365 Days]

= [$138,900/2] / $1,374.52 per day

= $69,450 / $1,374.52 per day

= 50.53 Days

Therefore, the Company’s Operating Cycle = Average Collection Period + Days sales in Inventory

= 28.00 Days + 50.53 Days

= 78.53 Days

“Hence, the Company’s Operating Cycle will be 78.53 Days”