operates department stores in numerous states. Suppose selected financial statement data (in millions) for 2020 are presented below. End of Year Beginning of Year Cash and cash equivalents $ 770 $ 69 Accounts receivable (net) 1,950 1,880 Inventory 810 860 Other current assets 590 331 Total current assets $4,120 $3,140 Total current liabilities $2,030 $1,640 For the year, net credit sales were $8,258 million, cost of goods sold was $5,328 million, and net cash provided by operating activities was $1,251 million. Compute the current ratio, accounts receivable turnover, average collection period, inventory turnover and days in inventory at the end of the current year. (Round current ratio to 2 decimal places, e. g. 1.83 and all other answers to 1 decimal place, e. g. 1.8. Use 365 days for calculation.) Current ratio :1 Accounts receivable turnover times Average collection period days Inventory turnover times Days in inventory days
Answer and Explanation:
The formulas and calculations are shown below:
1. Current ratio = Total Current assets ÷ total current liabilities
= $4,120 ÷ $2,030
= 2.03 times
2. Account receivable turnover
= Net credit sales ÷ Average accounts receivable
where,
Net credit sales is $8,258 million
And, the Average accounts receivable would be
= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2
= ($1,880 + $1,950) ÷ 2
= $1,915
So, the accounts receivable turnover ratio would be
= $8,258 ÷ $1,915
= 4.3 times
3. Average collection period is
= Total number of days in a year ÷ account receivable turnover ratio
= 365 days ÷ 4.31 times
= 84.6 days
4. Inventory turnover ratio =
= Cost of goods sold ÷ average inventory
where,
Average inventory = (Opening balance of inventory + ending balance of inventory) ÷ 2
= ($860 + $810) ÷ 2
= $835 million
And, the cost of good sold is $5,328 million
Now put these values to the above formula
So, the answer would be equal to
= $5,328 million ÷ $835 million
= 6.4 times
5. Days in inventory
= Total number of days in a year ÷ inventory turnover ratio
= 365 days ÷ 6.38 times
= 57.2 days
b is the correct answer