Question

The following information is taken from the records of XYZ Company: Cash $10,000 Accounts receivables 30,000 Inventory 80,000 Prepaid insurance 6,000 Fixed assets 200,000 Accounts payable 30,000 Notes payable (due in 10 months) 25,000 Wages payable 5,000 Long term liabilities 70,000 Owners’ equity 196,000 The company had sales of $150,000, cost of good sold of 60,000 and a net income of 25,000

MCQ

8-The company’s assets turnover is: A) 1 times B) 0.75 times C) 0.5 times

9. The company’s inventory turnover is: A) 1 times B) 0.75 times C) 0.5 times

10. The company’s Days inventory on hand is: A) 450 days B) 477 days C) 487 days

11. The company’s receivable turnover is: A) 5 times B) 10 times C) 15 times

12. The company’s average collection period is: A) 75 days B) 74 days C) 73 days

Answer 1

Cash	10,000
AR	30,000		AP	30,000
Inventory	80,000		NP	25,000
Prepaid Insurance	6,000		Wages Payable	5,000
Fixed Assets	200,000		Long-term Liabilities	70,000
			Equity	196,000
Total Asset	326,000
Sales	150,000
COGS	60,000
Gross Profit	90,000
Net Income	25,000

Asset Turnover= Total Sales/Average total Assets

                         = 150,000/ 326,000

                         = 0.46 = 0.5 times

So, part c) 0.5 times is the correct answer.

Inventory Turnover= COGS/Average Stock held

                                 = 60,000/80,000

                                 = 0.75 times

So, option B) 0.75 times is the correct answer.

Days of Inventory on Hand = Number of Days in the Period/Inventory Turnover for the Period

                                               = 365/0.75  (we have inventory turnover ratio for the year, so can calculate days' inventory on hand by dividing number of days in a year i.e. 365 by inventory turnover)

                                              = 486.67 ~ 487 days

So, option C) 487 days is the correct answer.

Receivable Turnover = Sales/ Average Accounts Receivables

                                    = 150,000/30,000

                                     = 5 times

So, option A) 5 times is the correct answer.

Average Collection Period = 365/ Receivable Turnover

                                             = 365/5

                                             = 73 days

So, Option C) 73 days is the correct answer.