Question

1. Combining the information provided by various ratios can enhance your understanding of the financial condition of a business.

   Comparative financial statements for Na Pali Coast Company for the years ending December 31, 20-1 and 20-2 are provided.
   

   Na Pali Coast Company Comparative Income Statement For Years Ended December 31, 20-2 and 20-1
   	20-2	20-1
   Net Sales	$466,451	$291,613
   Cost of goods sold	285,889	188,626
   Gross profit	$180,562	$102,987
   Operating expenses	125,650	78,200
   Operating income	$54,912	$24,787
   Other expenses	1,200	500
   Income before income taxes	$53,712	$24,287
   Income tax expense	18,250	7,285
   Net income	$ 35,462	$17,002

   Na Pali Coast Company Comparative Balance Sheet December 31, 20-2 and 20-
   	20-2	20-1
   Assets
   Current assets:
   Cash	$8,600	$7,500
   Government notes	3,000	2,000
   Accounts receivable (net)	10,500	8,600
   Merchandise inventory	53,600	33,200
   Supplies and prepayments	4,500	3,200
   Total current assets	$80,200	$54,500
   Property, plant, and equipment:
   Land	$40,000	$40,000
   Building (net)	200,000	150,000
   Delivery equipment (net)	13,000	15,000
   Office equipment (net)	5,400	6,000
   Patents	5,000	6,000
   Total property, plant, and equipment	$263,400	$217,000
   Total assets	$343,600	$271,500
   Liabilities
   Current liabilities:
   Notes payable	$5,000	$3,000
   Accounts payable	28,700	22,300
   Accrued and withheld payroll taxes	4,200	5,600
   Accrued interest payable	500	1,700
   Total current liabilities	$ 38,400	$32,600
   Long-term liabilities:
   Bonds payable	50,000	20,000
   Total liabilities	$88,400	$52,600
   Stockholders' Equity
   Common stock ($5 par)	$115,000	$100,000
   Paid-in capital in excess of par	65,000	60,000
   Retained earnings	75,200	58,900
   Total stockholders' equity	$255,200	$218,900
   Total liabilities and stockholders' equity	$343,600	$271,500

   Using the above information, respond to the following questions:

   Required:

   Note: Assume 365 days in a year.

   1. Compute the average number of days required to sell inventory and collect cash from customers buying on account. Round your answers to two decimal places.

   	Number of Days
   Accounts receivable turnover	days
   Merchandise inventory turnover	days
   Total time to sell the inventory and collect cash	days

   2. Note that Na Pali Coast Company also buys inventory on account. On average, how many days pass before Na Pali pays its creditors? Round your answer to two decimal places.
   days

   3. Using the information from your answers to parts (1) and (2), compute the number of days from the time Na Pali Coast pays for inventory until it receives cash from customers on account. Round your answer to two decimal places.
   days

Answer 1

1. (a) Average number of days required to sell inventory -

1. (b) Average number of days required to collect cash from customers buying on account -

1. (c) Total time to sell the inventory and collect cash days -

2. On average, how many days pass before Na Pali pays its creditors?

3. Using the information from your answers to parts (1) and (2), compute the number of days from the time Na Pali Coast pays for inventory until it receives cash from customers on account. Round your answer to two decimal places -