FERRIS COMPANY HAS CASH OF $70,000, SHORT-TERM INVESTMENTS OF 60,000, NET ACCOUNTS RECEIVABLE OF $86,000, INVENTORY...

FERRIS COMPANY HAS CASH OF $70,000, SHORT-TERM INVESTMENTS OF 60,000, NET ACCOUNTS RECEIVABLE OF $86,000, INVENTORY OF $96,000, PREPAID EXPENSES OF $60,000, ACCOUNTS PAYABLE OF $50,000, UNEARNED REVENUE OF $20,000, NOTES PAYABLE OF $10,000, SALARY PAYABLE OF $6,000, MORTGAGE PAYABLE OF $100,000, BONDS PAYABLE OF $75,000, INCOME TAXES PAYABLE OF $4,000, GROSS SALES OF $520,000, SALES RETURNS OF $8,000 AND SALES DISCOUNTS OF $7,000. LAST YEAR’S NET ACCOUNTS RECEIVABLE WERE $114,000.

COMPUTE THE FOLLOWING RATIOS:

A. QUICK RATIO

B. AVERAGE DAYS’ SALES UNCOLLECTED

Solutions

Expert Solution

Answer a.

Quick Assets = Cash + Short-term Investments + Net Accounts Receivable
Quick Assets = $70,000 + $60,000 + $86,000
Quick Assets = $216,000

Current Liabilities = Accounts Payable + Unearned Revenue + Salary Payable + Income Taxes Payable
Current Liabilities = $50,000 + $20,000 + $6,000 + $4,000
Current Liabilities = $80,000

Quick Ratio = Quick Assets / Current Liabilities
Quick Ratio = $216,000 / $80,000
Quick Ratio = 2.70

Answer b.

Net Sales = Gross Sales - Sales Returns - Sales Discounts
Net Sales = $520,000 - $8,000 - $7,000
Net Sales = $505,000

Average Accounts Receivables = ($86,000 + $114,000) / 2
Average Accounts Receivables = $100,000

Days’ Sales Uncollected = Average Accounts Receivables / Net Sales * 365
Days’ Sales Uncollected = $100,000 / $505,000 * 365
Days’ Sales Uncollected = 72.28 days

ekkarill92 answered 1 year ago

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