Evaluating ratio data [15-20 min]
Algonquin Carpets reported the following amounts in its 2013 financial statements. The 2012 figures are given for comparison.
2013 | 2012 | |||
Current assets: | ||||
Cash........................... | $ 4,000 | $ 10,000 | ||
Short-term investments ............ Accounts receivable............... | $ 63,000 | 20,000 | $ 76,000 | 9,000 |
Less: Allowance for uncollectibles . . | 6,000 | 57,000 | 5,000 | 71,000 |
Inventory....................... | 195,000 | 191,000 | ||
Prepaid insurance................. | 4,000 | 4,000 | ||
Total current assets ............... | $ 280,000 | $ 285,000 | ||
Total current liabilities............... | $ 104,000 | $ 10 6,000 | ||
Net sales (all on account)............. | $ 732,000 | $ 735,000 | ||
Requirements
1. Calculate Algonquin’s acid-test ratio for 2013. Determine whether Algonquin’s acid-test ratio improved or deteriorated from 2012 to 2013. How does Algonquin’s acid-test ratio compare with the industry average of 0.80?
2. Calculate the days’ sales in receivables for 2013. How do the results compare with Algonquin’s credit terms of net 30?
3. Calculate Algonquin’s accounts receivable turnover ratio. How does Algonquin’s ratio compare to the industry average accounts receivable turnover of 10?
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