Question

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash	$	24,000
Accounts receivable, net		210,000
Merchandise inventory		310,000
Prepaid expenses		8,000
Total current assets		552,000
Property and equipment, net		910,000
Total assets	$	1,462,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	210,000
Bonds payable, 12%		300,000
Total liabilities		510,000
Stockholders’ equity:
Common stock, $10 par value	$	170,000
Retained earnings		782,000
Total stockholders’ equity		952,000
Total liabilities and stockholders’ equity	$	1,462,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,775,000
Cost of goods sold		1,300,000
Gross margin		1,475,000
Selling and administrative expenses		610,000
Net operating income		865,000
Interest expense		36,000
Net income before taxes		829,000
Income taxes (30%)		248,700
Net income	$	580,300

Account balances at the beginning of the year were: accounts receivable, $160,000; and inventory, $340,000. All sales were on account.

Average collection period = 24.3

Required:

7. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.)

8. Operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)

Answer 1

Accounts Receivable Turnover = Sales / Avg.Accounts Receivable

                                            = 2775000 / ( 210000+160000)/2 = 2775000 / 185000 = 15

Average sale period = 365 / Accounts Receivable Turnover = 365 / 15 = 24.33 days

Operating cycle.= Inventory period + Accounts Receivable period = 91.25 days + 24.33 days = 115.58 days

Inventory Turnover = Cost of goods sold / Avg. Inventory = 1300000 / ( 310000+340000)/2

                                                                                 = 1300000 / 325000 = 4

Inventory period = 365 / Inventory T.O = 365 /4 =91.25 Days