Chapter 13 - Sol. of assigned problems

Chapter 13 - Sol. of assigned problems - Chapter 13...

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Chapter 13 Analyzing Financial Statements E13–3 Current ratio = CA / CL; therefore CL = CA / Current ratio = $54,000 / 1.80 = $30,000 (1) CR = ($54,000 + $ 6,000) / ($30,000 + $6,000) = $60,000 / $36,000 = 1.67 (2) CR = ($60,000 - $4,000) / $36,000 = $56,000 / $36,000 = 1.56 E13–5 Accounts receivable turnover = Net credit sales / Average net accounts receivable = $51,407 x 30% / ($3,038 + $4,062) ÷ 2 = 4.34 Inventory turnover = Cost of goods sold / Average inventory = $51,407 x (1 – 0.45) / ($3,640 + $4,400) ÷ 2 = 7.03 Average age of receivables = 365 / Accounts receivable turnover = 365 / 4.34 = 84 days (rounded) Average days’ supply of inventory = 365 / Inventory turnover = 365 / 7.03 = 52 days (rounded) E13–9 Turnover : Accounts receivable ($600,000 x 50%) ÷ [($50,000 + $70,000) ÷ 2] = 5.0 Inventory ($600,000 x .6) ÷ [($50,000 + $30,000) ÷ 2] = 9.0 Average age of receivables = 365 days ÷ 5 = 73 days Average days’ supply of inventory = 365 days ÷ 9.0 = 40.5 days The average age of receivables is relatively long if we consider a typical credit period of 30 days. It is possible that the company is not enforcing a strict collection policy from customers in order to keep a good relationship with them, especially if they are major customers. The relatively high average collection period could have resulted from a
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more liberal credit policy that resulted in an increase in sales and in outstanding accounts receivable. On the other hand, this average collection period may reflect delays in collecting from customers that are facing financial difficulties. In any case, the company should do an analysis of its accounts receivable on a regular basis and monitor collection efforts from potentially delinquent accounts. The average days’ supply of inventory depends on the nature of the goods sold by the company and the reliability of its suppliers. To evaluate the measure properly, one must compare it to previous levels as well as to the industry average. E13–13 1. Car manufacturer (high inventory; high property and equipment; low inventory turnover) 2. Wholesale candy company (high inventory turnover) 3. Retail fur store (high gross profit; high inventory, low inventory turnover) 4. Advertising agency (low inventory; absence of gross profit) P13–1 Req. 1 Increase (Decrease) 2006 over 2005 Amount Percent Income statement: Sales revenue. .................................................................... $30,000 18.18 Cost of goods sold. ............................................................. 20,000 20.00 Gross margin. ..................................................................... 10,000 15.38 Operating expenses and interest expense. ........................ 7,000 13.21 Pretax income. .................................................................... 3,000 25.0 Income tax. ......................................................................... 1,000 33.33 Net income. ......................................................................... $ 2,000
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Chapter 13 - Sol. of assigned problems - Chapter 13...

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