Question

Problem 3-16 Liquidity and Asset Management Ratios (LG3-1, LG3-2)

Mandesa, Inc. has current liabilities of $9,700,000, current ratio of 1.8 times, inventory turnover of 10 times, average collection period of 47 days, and credit sales of $65,700,000.

Calculate the value of cash and marketable securities. (Use 365 days a year. Do not round your intermediate calculations. Round your final answer to the nearest dollar amount.)

Answer 1

Current ratio = current assets/current liabiities

1.8 = current asets/9700000

current assets = 1.8*9700000

=17460000

inventory turnover ratio formula = Salles/inventory

10 = 65700000/inventory

inventory = 65700000/10

=6570000

average collection period = 365/sales * accounts receivable

47 = 365/65700000*accounts receivable

47*65700000/365 = accounts receivable

accounts receivable =8460000

Current assets = cash and cash equivalents + inventory + accounts receivable

17460000= cash and cash equivalents +6570000+8460000

17460000-6570000-8460000= cash and cash equivalents

cash and cash equivalents =2430000

So cash and cash equivalents is $2430000