Question

The Kretovich Company had a quick ratio of 1.1, a current ratio of 3.5, a days' sales outstanding of 32.0 days (based on a 365-day year), total current assets of $630,000, and cash and marketable securities of $115,000. What were Kretovich's annual sales? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Current ratio = Current assets / Current liabilities

3.5 = $630,000 / Current liabilities

Current liabilities = $630,000 / 3.5

                             = $180,000

Quick ratio = (Accounts receivable + Cash and securities) / Current liabilities

1. = (Accounts receivable + $115,000) / $180,000

Accounts receivable + $115,000 = 1.1 × 180,000

Accounts receivable + $115,000 = $198,000

Accounts receivable = $198,000 - $115,000

                                    = $83,000

Days’ sales outstanding = (Accounts receivable / Annual sales) × Days in a year

32 = ($83,000 / Annual sales) × 365

(32 / 365) = $83,000 / Annual sales

Annual sales = $83,000 × (365 / 32)

                        = $946,718.75

Answer: The amount of annual sales is $946,718.75.