Question

The Kretovich Company had a quick ratio of 1.2, a current ratio of 3.0, a days sales outstanding of 36.5 days (based on a 365-day year), total current assets of $795,000, and cash and marketable securities of $130,000. What were Kretovich's annual sales? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

We have been given the days sales outstanding which can be used to calculate the annual sales for the year.
However in order to use the days sales outstanding ratio we need to calculate the accounts receivable using the current ratio, quick ratio.
Current ratio	Current assets/Current liabilities
3	$795,000/Current liabilities
Current liabilities	$795,000/3
Current liabilities	$265,000
Quick ratio	(Current assets - Inventory)/Current liabilities
1.2	(795,000-Inventory)/$265,000
1.2*265000	795,000-Inventory
318000	795,000-Inventory
Inventory	795,000-318,000
Inventory	$477,000
Current assets	Cash+Marketable securities+Accounts receivable+Inventory
795000	130,000+Accounts receivable+477,000
Accounts receivable	795000-130000-477000
Accounts receivable	$188,000
Days sales outstanding	(Accounts receivable/Sales)*365
36.5	(188000/Sales)*365
36.5	68620000/Sales
Sales	68620000/36.50
Sales	$1,880,000
Thus, the annual Sales for company is $1,880,000.