Question

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Natcher Corporation’s accounts receivable at the end of Year 2 was $148,000 and its accounts receivable...

Natcher Corporation’s accounts receivable at the end of Year 2 was $148,000 and its accounts receivable at the end of Year 1 was $156,000. The company’s inventory at the end of Year 2 was $151,000 and its inventory at the end of Year 1 was $143,000. Sales, all on account, amounted to $1,404,000 in Year 2. Cost of goods sold amounted to $822,000 in Year 2. The company’s operating cycle for Year 2 is closest to: (Round your intermediate calculations to 1 decimal place.)

Multiple Choice

48.9 days

104.9 days

74.4 days

70.8 days

Solutions

Expert Solution

104.9 days

Working:

# 1 Average accounts receivable = (148000+156000)/2 = 1,52,000
# 2 Average Inventory = (151000+143000)/2 = 1,47,000
# 3 Inventory turnover ratio = Cost of goods sold/Average Inventory = 822000 / 1,47,000 =           5.6
# 4 Days Inventory outstanding = Days in a Year/Inventory Turnover ratio = 365 /             5.6 =         65.2
# 5 Accounts Receivable Turnover ratio = Net credit sales/Average Accounts receivable = 1404000 / 1,52,000 =             9.2
# 6 Days sales outstanding = Days in a Year/Accounts receivable Turnover ratio = 365 /             9.2 =         39.7
# 7 Operating cycle for year 2 = Days Inventory outstanding + Days sales outstanding =         65.2 +         39.7 =         104.9

ekkarill92 answered 2 years ago
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