Question

The Kretovich Company had a quick ratio of 0.8, a current ratio of 4.0, a days' sales outstanding of 36.0 days (based on a 365-day year), total current assets of $870,000, and cash and marketable securities of $95,000.

What were Kretovich's annual sales? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Solution:
	Kretovich's annual sales	$800,972.22
Working Notes:
	Current ratio = Current assets / current liabilities
	4.0 = $870,000 / current liabilities
	current liabilities= $870,000 / 4.0
	current liabilities= $217,500
	quick ratio = (Current assets-Inventories)/current liabilities
	0.80 = (870,000-Inventories)/217,500
	174,000 = 870,000 - inventories
	inventories = 870,000 -174,000
	inventories = $696,000
	Current assets = Cash + Marketable Securities + Accounts Receivable + Inventories
	$870,000 = 95,000 + Accounts Receivable + 696,000
	Accounts Receivable = $870,000 -$95,000-$696,000
	Accounts Receivable = $79,000
	days' sales outstanding of 36.0 days (based on a 365-day year)
	Days' sales outstanding = Accounts receivable/(Sales/365)
	36 = 79,000/(sales/365)
	36 = 79,000 x 365 /Sales
	Sales = 79,000 x 365 /36
	Sales = $800,972.2222
	Sales = $800,972.22
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