Question

Inverness Steel Corporation is a producer of flat-rolled carbon, stainless and electrical steels, and tubular products. The company's income statement for the 2018 fiscal year reported the following information ($ in millions):

Sales	$	7,100
Cost of goods sold		6,100

The company's balance sheets for 2018 and 2017 included the following information ($ in millions):

	2018			2017
Current assets:
Accounts receivable, net	$	722		$	622
Inventories		940			854

The statement of cash flows reported bad debt expense for 2018 of $6 million. The summary of significant accounting policies included the following notes ($ in millions):

Accounts Receivable (in part)
The allowance for uncollectible accounts was $8 and $5 at December 31, 2018 and 2017, respectively. All sales are on credit.

Inventories
Inventories are valued at the lower of cost or market. The cost of the majority of inventories is measured using the last in, first out (LIFO) method. Other inventories are measured principally at average cost and consist mostly of foreign inventories and certain raw materials. If the entire inventory had been valued on an average cost basis, inventory would have been higher by $570 and $420 at the end of 2018 and 2017, respectively.
During 2018, 2017, and 2016, liquidation of LIFO layers generated income of $9, $10, and $28, respectively.

Required:
1. Determine the amount of accounts receivable Inverness wrote off during 2018. (Enter your answer in millions.)
2. Calculate the amount of cash collected from customers during 2018. (Enter your answer in millions.)
3. Calculate what cost of goods sold would have been for 2018 if the company had used average cost to value its entire inventory. (Enter your answer in millions.)
4. Calculate the receivables turnover ratio, the inventory turnover ratio, and the gross profit ratio for 2018. (Round "Receivables turnover ratio" and "Inventory turnover ratio" answers to 2 decimal places. Round "Gross profit ratio" answer to nearest percent (i.e., 0.123 needs to be entered as 12%).)

	1. Accounts receivable written off million 2. Cash collections million 3. Cost of goods sold million 4a. Receivables turnover ratio times 4b. Inventory turnover ratio times 4c. Gross profit ratio %

Answer 1

the amount of accounts receivable Inverness wrote off during 2018.= Beginning balance in allowance +bad debt expense- ending balance in allowance

= 5+6-8

   = 3 million

2)Gross receivable = net receivable +balance in allowance

Cash collections = Beginning gross receivable +credit sales - write off - ending gross receivable

      = [622+5]+7100-3 - [722+8]

      = 627+7100-3-730

   = 6994

3)cost of goods sold =COGS under LIFO +increase in beginning inventory - increase in ending inventory

      = 6100+420-570

     = 5950

4)Receivable turnover ratio = sales / Average receivable

    = 7100/[(722+622)/2]

     =7100 /(1344/2]

       =7100/ 672

      = 10.57

Inventory turnover ratio = cost of goods sold /average inventory

    = 6100/[(940+854)/2]

      = 6100 / 897

    = 6.80

gross profit = [sales- COGS ]/sales

      =[7100-6100]/7100

    = 1000/7100

      = .1408 or rounded to 14%