Question

Excerpts from Candle Corporation's most recent balance sheet (in thousands of dollars) appear below:

       

	Year 2		Year 1
Current assets:
Cash	$	200	$	140
Accounts receivable		200		210
Inventory		120		160
Prepaid expenses		54		64
Total current assets	$	574	$	574
Current liabilities:
Accounts payable	$	130	$	130
Accrued liabilities		80		84
Notes payable, short term		64		54
Total current liabilities	$	274	$	268

   

Sales on account during the year totaled $1,400 thousand. Cost of goods sold was $870 thousand.

Required:

      

      

e.	Compute the following average collection period for Year 2.(Use 365 days in a year. Round your intermediate calculations to 2 decimals places and your final answer to 2 decimal place.)

    

      

f.	Compute the following inventory turnover for Year 2.(Round your answer to 2 decimal places.)

  

      

g.	Compute the following average sale period for Year 2. (Use 365 days in a year. Round your intermediate calculations to 2 decimals places and your final answer to 2 decimal place.)

Answer 1

	Ratio		Computation
e. Average Collection Period	Days in a Year	=	365	=	365
Account Receivable Turnover ratio	Net Credit Sales/ Average account receivable	1400000/(210000+200000)/2
				=	365	=	53.45	Days
				6.83
f. Inventory turnover	Cost of Goods Sold	=	Cost of Goods Sold	=	870000	=	6.21
Average Inventory	(Opening Inventory + Closing Inventory)/2	140000
g. Average sale period	Days in a Year	=	365	=	365	=	58.74	Days
Inventory Turnover	Cost of Goods Sold/(Opening Inventory + Closing Inventory)/2	6.21