Calculate Current Assets: The current ratio is defined as:

Current ratio=Current Assets/ Current Liabilities

2.5= x/ 400000

Current Assets=2.5×400,000=$1,000,000

Calculate Quick Assets: The quick (acid-test) ratio is defined as:

Quick ratio=Current Assets−Inventory/Current Liabilities

2= x/ 400000

Quick Assets=2.0×400,000=$800,000

Determine Inventory: Inventory can be found by subtracting quick assets from current assets:

Inventory=Current Assets−Quick Assets=1,000,000−800,000=$200,000

Calculate Cost of Sales (COGS): The inventory turnover ratio formula is:

Inventory Turnover Ratio=COGS/Average Inventory

Rearrange to solve for COGS:

COGS=Inventory Turnover Ratio×Average Inventory

COGS=3×200,000=$600,000
Number of days’ sales in receivables=(Year-end Gross Receivables/ net sales )​×365
2007 Calculation:
Year-end gross receivables for 2007 = $220,385 + $11,180 (allowance) = $231,565.
Number of days’ sales in receivables (2007)=(231,565/1,180,178)×365≈71.61 day
2006 Calculation:
Year-end gross receivables for 2006 = $240,360 + $12,300 (allowance) = $252,660.
Number of days’ sales in receivables (2006)=(252,660/ 2,200,000)×365≈41.92 days

Accounts Receivable Turnover Ratio=Net Sales/ Average Gross Receivables

2007 Calculation:
Average Gross Receivables=Beginning Gross Receivables+Ending Gross Receivables​/2
(240360+12300(allowance) + $220,385 + $11,180 (allowance) )/2=
242112.5
Accounts Receivable Turnover Ratio= 1180178/242112.5 = 4.87
2006 Calculation:
Average Gross Receivables=Beginning Gross Receivables+Ending Gross Receivables​/2
(230180+7180(allowance) + $240,360 + $12,300 (allowance) )/2
245010
Accounts Receivable Turnover Ratio= 2,200,000/245010 = 8.979

The accounts receivable turnover was approximately 4.87 times in 2007 and 8.98 times in 2006, indicati
that receivables were collected more frequently in 2006 than in 2007, which points to reduced efficienc
in 2007.

Accounts receivable turnover= met sales/ Year-end Gross Receivables

2007 Calculation:
Accounts receivable turnover (2007)=1,180,178/ 231,565≈5.10 times
2006 Calculation:
Accounts receivable turnover (2006)=2,200,000/ 252,660≈8.71 times

The liquidity of Hawk Company's receivables declined from 2006 to 2007.

The increase in the number of days' sales in receivables from ~41.92 days
to ~71.61 days and the drop in the accounts receivable turnover from
approximately 8.71 times to 5.10 times indicate slower collection of
receivables in 2007 compared to 2006. This implies a potential slowdown
in cash inflow efficiency.
= $231,565.

= $252,660.

+ $11,180 (allowance) )/2=

+ $12,300 (allowance) )/2

nd 8.98 times in 2006, indicating

ich points to reduced efficiency
Days’ Sales in Receivables=(Year-end Receivables/ net sales )​×365
July 31, 2007 Calculation:
Year-end receivables (gross) = $94250.
Net sales for the period = $790,000.
Days’ Sales in Receivables (July 31)=( 94250/ 790,000)×365≈ days43.54 days

December 31, 2007 Calculation:

Year-end receivables (gross) = $58900.
Net sales for the period = $800,000.
Days’ Sales in Receivables (December 31)=58900/ 800,000×365≈26.87 days

Accounts Receivable Turnover=net sales/ Year-endgross Receivabless

July 31, 2007 Calculation:

Accounts Receivable Turnover (July 31)=790,000/ 94283≈8.381 times

December 31, 2007 Calculation:

Accounts Receivable Turnover (December 31)=800,000/ 58900≈13.583 times

The results indicate that Williams Produce improved its receivables management
between July and December 2007. The days’ sales in receivables decreased
significantly from approximately 43.55 days to 26.87 days, suggesting faster
collection of receivables by year-end. Additionally, the accounts receivable turnover
increased from 8.381 times to 13.583 times, indicating more frequent collection of
receivables in the latter part of the year, which reflects better efficiency in managing
credit.
Days’ Sales in Receivables=(Year-end Gross Receivables/ net sales)​×365

Calculations:

1. L. Solomon Company:
Gross receivables: $118,000
Net sales: $1,800,000.
Days’ Sales in Receivables (Solomon)=(118,000/ 1,800,000)×365≈23.92 days

2. L. Konrath Company:
Gross receivables: $64,000 .
Net sales: $1,850,000.
Days’ Sales in Receivables (Konrath)= (64,000/1,850,000)×365≈12.62 days

b. Comment on the results.

The days’ sales in receivables metric indicates how long it takes each company to
collect its average receivables. L. Konrath Company, with approximately 12.62 days,
collects receivables significantly faster than L. Solomon Company, which takes about
23.92 days. This difference suggests that L. Konrath Company is more efficient in
managing its receivables, contributing to better cash flow and potentially higher
profit results due to quicker reinvestment capabilities and lower exposure to
uncollected debt. In contrast, L. Solomon Company's longer collection period may
imply slower cash conversion and a potential drag on profitability.
a
Accounts Receivable Turnover per Year=365/ Accounts Receivable Turnover in Days
365/36= 10.138 times

b
Accounts Receivable Turnover per Year=365/ Accounts Receivable Turnover in Days
12= 365/ART
ART= 365/12= 30.416 days

c
Days’ Sales in Receivables =( gross recievable/ net sales )*365
*280000/2158000)*365= 47.358 days

d Accounts Receivable Turnover= net sales/ average gross recievables

3500000/324000= 10.80 times
The Days’ Sales in Inventory ratio measures how many days it takes, on average, for a company to sell its inventory

Days’ Sales in Inventory=( Ending Inventory/Cost of Goods Sold)×365

Substitute the given values:

Days’ Sales in Inventory=(360,500/2,100,000)×365

Let’s calculate it:

Days’ Sales in Inventory≈0.1717×365≈62.7 days

So, Days' Sales in Inventory = 62.7 days.

Requirement (b): Is J. Shaffer Company’s Days’ Sales in Inventory Realistic?

Given that J. Shaffer Company uses LIFO inventory during a period of persistent inflation, the ending inventory val
LIFO assigns the cost of the most recent purchases to COGS, leaving older (often lower-cost) items in ending invent
than if the company had used FIFO or a method that better reflects current costs.

Because the days' sales in inventory calculation is based on the LIFO-based ending inventory, it may not fully repre
ending inventory is undervalued due to inflation. The actual inventory turnover may be quicker than the computed
company is selling inventory at higher replacement costs.

Requirement (c): Would the Days’ Sales in Inventory Computed for J. Shaffer Company Be a

The days' sales in inventory calculation provides some insight but might not be entirely reliable for J. Shaffer Compa
under inflationary conditions. If the ending inventory value is understated, the calculated days' sales in inventory m
it takes to sell the inventory. Therefore, it may be less helpful for management’s decision-making than if it were ca
reflects current inventory costs, like FIFO or average cost.

To get a more accurate measure of inventory turnover, the company could:

1. Estimate a FIFO-based days’ sales in inventory by adjusting the ending inventory to reflect more current costs.
2. Use additional metrics, like inventory replacement cost or inventory turnover ratio adjusted for inflation, to ga

Summary of Answers
1. Days' Sales in Inventory: Approximately 62.7 days.
2. Realism: The days' sales in inventory may be overstated due to LIFO, which results in an undervalued ending in
3. Helpfulness: The computed days' sales in inventory may provide limited guidance under LIFO during inflation. A
a company to sell its inventory. This ratio is computed as follows:

tion, the ending inventory value may be understated compared to its replacement cost or market value.
r-cost) items in ending inventory. This may result in a lower ending inventory value on the balance sheet

ventory, it may not fully represent the actual number of days' inventory held if the
be quicker than the computed days’ sales in inventory suggests, especially if the

. Shaffer Company Be a Helpful Guide?

ly reliable for J. Shaffer Company due to the impact of LIFO

ated days' sales in inventory may be higher than the actual time
ision-making than if it were calculated using a method that

to reflect more current costs.

tio adjusted for inflation, to gauge actual inventory management performance.
ts in an undervalued ending inventory in inflationary conditions.
e under LIFO during inflation. Adjusting for more current inventory costs could give more accurate insight.
Given Information

Average Inventory: $280,000

Cost of Goods Sold (COGS): $1,250,000

Requirement (a): Inventory Turnover in Days

Inventory Turnover in Days measures the average number of days it takes for a company to sell its inventory. The f

Inventory Turnover in Days=(Average Inventory/ Cost of Goods Sold)×365

Substitute the given values:

Inventory Turnover in Days=(280,000/1,250,000)×365=0.224×365≈81.76 days

So, Inventory Turnover in Days is approximately 81.8 days.

Requirement (b): Inventory Turnover

Inventory Turnover measures how many times a company’s inventory is sold and replaced over a period. The form

Inventory Turnover=Cost of Goods Sold/ Average Inventory

Substitute the given values:

Inventory Turnover=1,250,000/ 280,000

Calculating this:
So, Inventory Turnover is approximately 4.46 times.

Summary of Answers

1. Inventory Turnover in Days: Approximately 81.8 days

2. Inventory Turnover: Approximately 4.46 times
pany to sell its inventory. The formula is:

laced over a period. The formula is:

Given Information

Net Sales: $3,150,000

Beginning Accounts Receivable: $160,000
Ending Accounts Receivable: $180,000
Beginning Inventory: $390,000
Ending Inventory: $480,000
Cost of Goods Sold (COGS): $2,250,000

Step 1: Calculating Average Accounts Receivable and Average Inventory

1. Average Accounts Receivable:

Average Accounts Receivable=Beginning Accounts Receivable+Ending Accounts Receivable/2 =(160,000+180,000

2. Average Inventory:

Average Inventory=(Beginning Inventory+Ending Inventory)/2=(390,000+480,000)/2=435,000

Requirement (a): Accounts Receivable Turnover in Days

Accounts Receivable Turnover in Days measures the average number of days it takes for the company to collect its

Accounts Receivable Turnover in Days=(Average Accounts Receivable/ Net Sales)×365=(170,000/3,150,000)×365=0

So, Accounts Receivable Turnover in Days is approximately 19.7 days.

Requirement (b): Inventory Turnover in Days

Inventory Turnover in Days measures the average number of days it takes for a company to sell its inventory. The f

Inventory Turnover in Days=(Average Inventory/Cost of Goods Sold)×365=(435,000/2,250,000)×365=0.1933×365≈7

So, Inventory Turnover in Days is approximately 70.6 days.
Requirement (c): Operating Cycle
The Operating Cycle represents the total time it takes for the company to purchase inventory, sell it, and collect cas

Operating Cycle=Accounts Receivable Turnover in Days+Inventory Turnover in Days

Substitute the values we calculated:

Operating Cycle=19.7+70.6=90.3 days

So, Operating Cycle is approximately 90.3 days.

Summary of Answers

1. Accounts Receivable Turnover in Days: Approximately 19.7 days

2. Inventory Turnover in Days: Approximately 70.6 days
3. Operating Cycle: Approximately 90.3 days
eivable/2 =(160,000+180,000)/2=170,000

for the company to collect its receivables. The formula is:

5=(170,000/3,150,000)×365=0.05397×365≈19.7 days

pany to sell its inventory. The formula is:

,250,000)×365=0.1933×365≈70.6 days
nventory, sell it, and collect cash from sales. The formula is:
To estimate how long it will take for Anna Banana Company to realize cash from its ending inventory, we need to ca
metric will indicate the average number of days it takes to sell the inventory, and assuming the company collects ca
of the cash realization period for the inventory.

Given Information

Accounts Receivable (net): $560,000 (provided but not directly relevant to calculating inventory turnover)
Ending Inventory: $680,000
Net Sales: $4,350,000
Cost of Goods Sold (COGS): $3,600,000

Step 1: Calculate the Inventory Turnover Ratio

The Inventory Turnover Ratio tells us how many times the inventory is sold and replaced during the year. The form

Inventory Turnover Ratio=Cost of Goods Sold/Ending Inventory

Substitute the values:

Inventory Turnover Ratio=3,600,000/ 680,000=5.29 times per year

Step 2: Calculate the Inventory Turnover in Days

The Inventory Turnover in Days gives the average number of days it takes to sell the ending inventory. The formula

Inventory Turnover in Days=365

Substitute the inventory turnover ratio:

Inventory Turnover in Days=365/5.29

Calculating this:

Inventory Turnover in Days≈69.0 days

Final Answer

Anna Banana Company can expect to realize cash from its ending inventory in approximately 69 days.
nding inventory, we need to calculate the Inventory Turnover in Days. This
uming the company collects cash shortly after sales, it will give an estimate

ng inventory turnover)

ced during the year. The formula is:

ending inventory. The formula is:

imately 69 days.
Given Information

Ending Accounts Receivable: $480,000

Allowance for Doubtful Accounts: $25,000 (already subtracted from accounts receivable)
Ending Inventory (LIFO): $570,000
Estimated Replacement Cost of Inventory: $900,000
Net Sales: $3,650,000
Cost of Goods Sold (LIFO): $2,850,000
Estimated Replacement Cost of Cost of Goods Sold: $3,150,000

Requirement (a): Compute the Days’ Sales in Receivables

Days' Sales in Receivables measures the average number of days it takes to collect accounts receivable. The formu

Days’ Sales in Receivables=(Ending Accounts Receivable/Net Sales)×365

Substitute the values:

Days’ Sales in Receivables=(480,000/3,650,000)×365=0.1315×365≈48.0 day

So, Days' Sales in Receivables is approximately 48 days.

Requirement (b): Compute the Days’ Sales in Inventory Using the Cost Figure (LIFO)

Days' Sales in Inventory measures the average number of days it takes to sell the inventory. Using the LIFO cost fig

Days’ Sales in Inventory (LIFO)=(Ending Inventory (LIFO)/Cost of Goods Sold (LIFO))×365=(570,000/2,850,000)×365

So, Days' Sales in Inventory using the LIFO cost figure is 73 days.
Requirement (c): Compute the Days’ Sales in Inventory Using the Replacement Cost for Inve

To compute Days’ Sales in Inventory using replacement costs, we use the replacement cost values for both ending

Days’ Sales in Inventory (Replacement Cost)=(Replacement Cost of Ending Inventory/Replacement Cost of Cost of G

Requirement (d): Should Replacement Cost of Inventory and Cost of Goods Sold Be Used Wh

Yes, when possible, the replacement cost of inventory and cost of goods sold should be used when computing days
1. More Accurate Reflection of Inventory Turnover: LIFO inventory accounting can lead to an understated invento
inventory remaining in stock. This can distort the days' sales in inventory, making it appear lower than it truly is.

2. Alignment with Current Market Conditions: Replacement cost represents the current cost to replace inventory,
economic value. This approach aligns better with current market conditions, which is helpful for decision-makers an
ccounts receivable. The formula is:

st Figure (LIFO)

entory. Using the LIFO cost figures, the formula is:

65=(570,000/2,850,000)×365

placement Cost for Inventory and Cost of Goods Sold

nt cost values for both ending inventory and cost of goods sold:

Replacement Cost of Cost of Goods Sold)×( 365=900,000/3,150,000)×365=0.2857×365≈104.3 days

Goods Sold Be Used When Possible?

be used when computing days’ sales in inventory, especially in periods of inflation. Here’s why:
ad to an understated inventory balance on the balance sheet due to older, lower-cost
ppear lower than it truly is.

ent cost to replace inventory, making it a more accurate reflection of the inventory's
helpful for decision-makers and financial analysts.