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Stratosphere Wireless is examining its cash conversion cycle. The company expects its cost of goods sold, which equals 60 percent of sales, to be $540,000 this year. Stratosphere normally turns over inventory 20 times per year, accounts receivable is turned over 18 times per year, and the accounts payable turnover is 36. Assume there are 360 days in a year. Calculate the cash conversion cycle. Round your answer to the nearest whole number. days Calculate the average balances in accounts receivable, accounts payable, and inventory. Round your answers to the nearest dollar. Accounts receivable: $ Accounts payable: $ Inventory: $

Stratosphere Wireless is examining its cash conversion cycle. The company expects its cost of goods sold, which equals 60 percent of sales, to be $540,000 this year. Stratosphere normally turns over inventory 20 times per year, accounts receivable is turned over 18 times per year, and the accounts payable turnover is 36. Assume there are 360 days in a year. Calculate the cash conversion cycle. Round your answer to the nearest whole number. days Calculate the average balances in accounts receivable, accounts payable, and inventory. Round your answers to the nearest dollar. Accounts receivable: $ Accounts payable: $ Inventory: $

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Stratosphere Wireless is examining its cash conversion cycle. The company expects its cost of goods sold, which equals 60 percent of sales, to be $540,000 this year. Stratosphere normally turns over inventory 20 times per year, accounts receivable is turned over 18 times per year, and the accounts payable turnover is 36. Assume there are 360 days in a year.

 

  1. Calculate the cash conversion cycle. Round your answer to the nearest whole number.

      days

  2. Calculate the average balances in accounts receivable, accounts payable, and inventory. Round your answers to the nearest dollar.

    Accounts receivable: $  

    Accounts payable: $  

    Inventory: $  

 

I got the last question wrong. I have attached an example to the correct solution. Is there an  easier way?
 
Post Submission Feedback Solution Cost of goods sold = $144,000 Cost of goods sold = 60 percent of sales Inventory turnover = 24 Accounts receivable turnover = 12 Accounts payable turnover 45 Sales = $144,000/0.6 = $240,000 Receivables collection period Payables deferral period = DPO = (360 days)/45 = 8 days Inventory conversion period = ICP = (360 days)/24 = 15 days a. Cash conversion cycle = DSO + ICP - DPO = 30 days + 15 days - 8 days = 37 days b. Accounts receivable = $240,000/12 = $20,000 = $240,000/(360 days) × 30 days Inventory = $144,000/24 = $6,000 = $144,000/(360 days) × 15 days Accounts payable = $144,000/45 = $3,200 = $144,000/(360 days) x 8 days = = DSO = (360 days)/12 = 30 days
Transcribed Image Text:Post Submission Feedback Solution Cost of goods sold = $144,000 Cost of goods sold = 60 percent of sales Inventory turnover = 24 Accounts receivable turnover = 12 Accounts payable turnover 45 Sales = $144,000/0.6 = $240,000 Receivables collection period Payables deferral period = DPO = (360 days)/45 = 8 days Inventory conversion period = ICP = (360 days)/24 = 15 days a. Cash conversion cycle = DSO + ICP - DPO = 30 days + 15 days - 8 days = 37 days b. Accounts receivable = $240,000/12 = $20,000 = $240,000/(360 days) × 30 days Inventory = $144,000/24 = $6,000 = $144,000/(360 days) × 15 days Accounts payable = $144,000/45 = $3,200 = $144,000/(360 days) x 8 days = = DSO = (360 days)/12 = 30 days
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