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Exercise 17-8 Liquidity analysis and interpretation LO P3

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

At December 31	2017			2016			2015
Assets
Cash	$	25,420		$	29,713		$	30,952
Accounts receivable, net		89,900			62,900			55,300
Merchandise inventory		114,000			82,500			55,000
Prepaid expenses		8,186			7,800			3,439
Plant assets, net		197,691			192,257			171,109
Total assets	$	435,197		$	375,170		$	315,800
Liabilities and Equity
Accounts payable	$	107,280		$	62,770		$	41,269
Long-term notes payable secured by mortgages on plant assets		80,999			85,426			69,094
Common stock, $10 par value		162,500			162,500			162,500
Retained earnings		84,418			64,474			42,937
Total liabilities and equity	$	435,197		$	375,170		$	315,800

The company’s income statements for the years ended December 31, 2017 and 2016, follow. Assume that all sales are on credit:

For Year Ended December 31	2017						2016
Sales				$	565,756					$	446,452
Cost of goods sold	$	345,111					$	290,194
Other operating expenses		175,384						112,952
Interest expense		9,618						10,268
Income taxes		7,355						6,697
Total costs and expenses					537,468						420,111
Net income				$	28,288					$	26,341
Earnings per share				$	1.74					$	1.62
1. Compute days' sales uncollected Days' Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected Current assets / Current liabilities x = Days' Sales Uncollected 2017: / x = 0 days 2016: / x = 0 days

2. Compute accounts receivable turnover

	Accounts Receivable Turnover Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover Current assets / Current liabilities = Accounts receivable turnover 2017: / = 0 times 2016: / = 0 times

3. Compute inventory turnover

	Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover / = Inventory turnover 2017: / = times 2016: / = times

4. Compute days' sales in inventory

	Days’ Sales In Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales In Inventory / x = Days’ sales in inventory 2017: / x = days 2016: / x = days

Answer 1

1. Days sales uncollected

Days sales uncollected
	Choose Numerator	/	Choose Denominator	*	Days	=	Days sales uncollected
	Accounts Receivables	/	Net Sales	*	365	=	Days sales uncollected
2017	$ 89,900	/	$ 565,756	*	365	=	60 DAYS
2016	$ 62,900	/	$ 446,452	*	365	=	51 DAYS

2. Accounts Receivables Turnover

Accounts Receivables Turnover
	Choose Numerator	/	Choose Denominator	=	Accounts Receivables Turnover
	Net credit sales	/	Average Accounts receivable	=	Accounts Receivables Turnover
2017	$ 565,756	/	(89900+62900)/2= $ 76,400	=	7.41 times
2016	$ 446,452	/	(62900+55300)/2= $ 59,100	=	7.55 times

3. Inventory Turnover

Inventory Turnover
	Choose Numerator	/	Choose Denominator	=	Inventory Turnover
	Cost of goods sold	/	Average inventory	=
2017	$ 345,111	/	(114000+82500)/2= $ 98,250	=	3.51 times
2016	$ 290,194	/	(82500+55000)/2= $ 68,750	=	4.22 times

4.Days sales in inventory

Days sales in inventory
	Choose Numerator	/	Choose Denominator	*	Days	=	Days sales in inventory
	Inventory	/	Cost of goods sold	*	365	=	Days sales in inventory
2017	$ 114,000	/	$ 345,111	*	365	=	121 DAYS
2016	$ 82,500	/	$ 290,194	*	365	=	104 DAYS