Question
In: Finance
The following data is taken from a firm’s income statement: Sales 6,000 Cost of goods sold...
The following data is taken from a firm’s income statement:
Sales 6,000 Cost of goods sold 4,500 Interest 600 Tax 150
And from its balance sheet: Cash 800 Inventory 650 Accounts
receivable 180 Accounts payable 460
(a) Calculate the firm’s cash conversion cycle. Use 365 days per
year.
(b) Is reducing the cash conversion cycle a good objective or not?
Explain.
(c) Can a cash conversion cycle be negative? Explain, and if so,
give an example of a type of firm that would have a negative
cycle.
Solutions
Expert Solution
(a). Cash conversion cycle = 26.36 days
Explanation;
Cash conversion cycle =
Days inventory outstanding + Days sales outstanding – Days payable outstanding
Days inventory outstanding = $650 * 365 / $4500
= 52.72 days
Days sales outstanding = $180 * 365 / $6000
= 10.95 days
Days payable outstanding = $460 * 365 / $4500
= 37.31 days
Hence, Cash conversion cycle = 52.72 days + 10.95 days – 37.31 days
= 26.36 days
(b).
Reducing the cash conversion cycle a good objective because reduced cash conversion cycle will help a company in realisation of cash much quickely in compare to a company which have longer cash conversion cycle.
That is why it is true that reducing the cash conversion cycle a good objective.
(c).
It is true that a cash conversion cycle can be negative. Negative cash conversion cycle means a company is generating revenue from the customers before this company has to pay its suppliers. Such type of situation result into negative cash conversion cycle.
For example;
Amazon company have negative cash conversion cycle. Apart from this Dell company also showed negative cash conversion cycle in some years.
jeff jeffy answered 11 months agoRelated Solutions
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The following data from the just completed year are taken from
the accounting records of Mason Company:
Sales ..........................................
$524,000
Direct labor cost..................................
$70,000
Raw material purchases............................
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Selling expenses .................................
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Administrative expenses ...........................
$63,000
Manufacturing overhead applied to work in process ......
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Actual manufacturing overhead costs .................
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Inventories
Beginning of
End of
Year
Year
Raw materials..............
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$15,000
Work in process............
$10,000
$5,000...
The 2018 income statement of Adrian Express reports sales of $15,015,000, cost of goods sold of...
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ADRIAN EXPRESS
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December 31, 2018 and 2017
2018
2017
Assets
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Cash
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$
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Accounts receivable
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Inventory
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1,370,000
Long-term
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Total
assets
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8,420,000
$
7,280,000
Liabilities
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Current
liabilities
$
1,990,000
$
1,630,000...
Prepare the companies statement of cash flows: Income statement: Sales $180,000 Cost of Goods Sold ($110,000)...
Prepare the companies statement of cash flows:
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Sales $180,000
Cost of Goods Sold ($110,000)
Depreciation Expense ($30,000)
Operating Expense ($18,000)
Loss on sale of land ($1,000)
Gain on the sale of equipment $5,000
Net income $26,000
Balance Sheet- 2017/2016
Cash- $35,000 (2017)/ $53,000 (2016)
AR- $25,000 / $32,000
Inventory- $40,000 / $32,000
Prepaid Expense- $5,000 / $4,000
Investments- $15,000 / $10,000
Land- $15,000 / $18,000
Build & Equip, net- $145,000 / $122,000
Total Assets- $280,000 / $271,000
Acct....
Bayside, Inc. 2017 Income Statement ($ in thousands) Net sales $ 6,170 Cost of goods sold...
Bayside, Inc.
2017 Income Statement
($ in thousands)
Net
sales
$
6,170
Cost of goods
sold
4,590
Depreciation
395
Earnings before
interest and taxes
$
1,185
Interest
paid
44
Taxable
income
$
1,141
Taxes
399
Net income
$
742
Bayside, Inc.
2016 and 2017 Balance Sheets
($ in thousands)
2016
2017
2016
2017
Cash
$
145
$
250
Accounts payable
$
1,710
$
1,770
Accounts
rec.
1,130
970
Long-term
debt
880
680
Inventory
1,805
2,130
Common
stock
3,380
3,350...
Windswept, Inc. 2017 Income Statement ($ in millions) Net sales $ 8,700 Cost of goods sold...
Windswept, Inc.
2017 Income Statement
($ in millions)
Net
sales
$
8,700
Cost of goods
sold
7,340
Depreciation
405
Earnings before
interest and taxes
$
955
Interest
paid
82
Taxable
income
$
873
Taxes
306
Net income
$
567
Windswept, Inc.
2016 and 2017 Balance Sheets
($ in millions)
2016
2017
2016
2017
Cash
$
150
$
185
Accounts payable
$
1,180
$
1,260
Accounts
rec.
920
730
Long-term
debt
1,000
1,265
Inventory
1,520
1,550
Common
stock
3,210
2,900...
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Q4.
The 2021 income statement of Adrian Express reports sales of
$20,710,000, cost of goods sold of $12,600,000, and net income of
$1,980,000. Balance sheet information is provided in the following
table.
ADRIAN EXPRESS
Balance Sheets
December 31, 2021 and 2020
2021
2020
Assets
Current assets:
Cash
$
840,000
$
930,000
Accounts receivable
1,775,000
1,205,000
Inventory
2,245,000
1,675,000
Long-term assets
5,040,000
4,410,000
Total assets
$
9,900,000
$
8,220,000
Liabilities and Stockholders' Equity
Current liabilities
$
2,074,000
$
1,844,000
Long-term liabilities...
Joyner Company’s income statement for Year 2 follows: Sales $ 714,000 Cost of goods sold ...
Joyner Company’s income statement for Year 2 follows:
Sales $ 714,000
Cost of goods sold 207,000
Gross margin 507,000
Selling and administrative expenses
217,000
Net operating income 290,000
Nonoperating items:
Gain on sale of equipment 7,000
Income before taxes 297,000
Income taxes 89,100
Net income $ 207,900
Its balance sheet amounts at the end of Years 1 and 2 are as
follows:
Year 2 Year 1
Assets ...
everal items are omitted from the income statement and cost of goods manufactured statement data for...
everal items are omitted from the income statement and cost of
goods manufactured statement data for two different companies for
the month of December.
On
Company
Off
Company
Materials inventory, December 1
$85,120
$108,950
Materials inventory, December 31
(a)
123,110
Materials purchased
216,200
(a)
Cost of direct materials used in production
228,120
(b)
Direct labor
320,900
245,140
Factory overhead
99,590
122,020
Total manufacturing costs incurred in December
(b)
704,910
Total manufacturing costs
812,040
967,480
Work in process inventory, December 1...
Several items are omitted from the income statement and cost of goods manufactured statement data for...
Several items are omitted from the income statement and cost of
goods manufactured statement data for two different companies for
the month of May:
1
Rainier Company
Yakima Company
2
Materials inventory, May 1
$280,000.00
$177,000.00
3
Materials inventory, May 31
(a)
175,000.00
4
Materials purchased
712,600.00
340,000.00
5
Cost of direct materials used in production
752,800.00
(a)
6
Direct labor
1,059,800.00
(b)
7
Factory overhead
326,600.00
179,400.00
8
Total manufacturing costs incurred in May
(b)
1,038,000.00
9
Total manufacturing...
Several items are omitted from the income statement and cost of goods manufactured statement data for...
Several items are omitted from the income statement and cost of
goods manufactured statement data for two different companies for
the month of December:
On
Company
Off
Company
Materials inventory, December 1
$88,800
$119,880
Materials inventory, December 31
(a)
135,460
Materials purchased
225,550
(a)
Cost of direct materials used in production
237,980
(b)
Direct labor
334,780
269,730
Factory overhead
103,900
134,270
Total manufacturing costs incurred in December
(b)
775,620
Total manufacturing costs
847,160
1,064,530
Work in process inventory, December 1...
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