Question

In: Accounting

Simon Company’s year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs...

Simon Company’s year-end balance sheets follow.

At December 31 Current Yr 1 Yr Ago 2 Yrs Ago
Assets
Cash $ 35,940 $ 42,011 $ 43,761
Accounts receivable, net 89,000 62,600 51,100
Merchandise inventory 110,000 83,500 57,000
Prepaid expenses 11,574 11,028 4,862
Plant assets, net 368,799 331,303 289,777
Total assets $ 615,313 $ 530,442 $ 446,500
Liabilities and Equity
Accounts payable $ 151,681 $ 88,748 $ 58,349
Long-term notes payable secured by
mortgages on plant assets
114,522 120,782 97,690
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 186,610 158,412 127,961
Total liabilities and equity $ 615,313 $ 530,442 $ 446,500


The company’s income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit:

For Year Ended December 31 Current Yr 1 Yr Ago
Sales $ 799,907 $ 631,226
Cost of goods sold $ 487,943 $ 410,297
Other operating expenses 247,971 159,700
Interest expense 13,598 14,518
Income tax expense 10,399 9,468
Total costs and expenses 759,911 593,983
Net income $ 39,996 $ 37,243
Earnings per share $ 2.46 $ 2.29

(2-a) Compute accounts receivable turnover.
(2-b) For each ratio, determine if it improved or worsened in the current year.

Simon Company’s year-end balance sheets follow.

At December 31 Current Yr 1 Yr Ago 2 Yrs Ago
Assets
Cash $ 35,940 $ 42,011 $ 43,761
Accounts receivable, net 89,000 62,600 51,100
Merchandise inventory 110,000 83,500 57,000
Prepaid expenses 11,574 11,028 4,862
Plant assets, net 368,799 331,303 289,777
Total assets $ 615,313 $ 530,442 $ 446,500
Liabilities and Equity
Accounts payable $ 151,681 $ 88,748 $ 58,349
Long-term notes payable secured by
mortgages on plant assets
114,522 120,782 97,690
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 186,610 158,412 127,961
Total liabilities and equity $ 615,313 $ 530,442 $ 446,500


The company’s income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit:

For Year Ended December 31 Current Yr 1 Yr Ago
Sales $ 799,907 $ 631,226
Cost of goods sold $ 487,943 $ 410,297
Other operating expenses 247,971 159,700
Interest expense 13,598 14,518
Income tax expense 10,399 9,468
Total costs and expenses 759,911 593,983
Net income $ 39,996 $ 37,243
Earnings per share $ 2.46 $ 2.29

(2-a) Compute accounts receivable turnover.
(2-b) For each ratio, determine if it improved or worsened in the current year.

Solutions

Expert Solution

2A Company Choose Numerator Net Sales 799,907 631,226 Account Receivable Turnover 7. Choose Denominator Avg. Account Receivables / / Account Receivable Turnover Account Receivable Turnover 10.55 11.10 Current Year 1 year Ago 75,800 56,850 = Working Avg. Account Receivables = (Beginning Balance + Ending Balance)/2 Current Year (89000 + 62600)/2 = 75800 1 year Ago (62600 +51100)/2 = 56850 2B Account Receivables Turnover has worsened. 1 year ago the company collected receivables 11.10 times in a year which has decreased to 10.55 times in a year. The higher the turnover is, it is considered good.


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