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Concept explainers
(a)
Compute
(a)
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Explanation of Solution
Accounts receivable turnover:
Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is computed by dividing “the net credit sales by the average amount of net accounts receivables”. In other words, it indicates the number of times the average amount of net accounts receivables collected during a particular period. The formula to calculate the accounts receivable turnover ratio is as follows:
Average collection period:
Average collection period indicates the number of days taken by a business to collect its outstanding amount of accounts receivable on an average.
Calculate accounts receivable turnover ratio:
Therefore, the accounts receivable turnover ratio is 5.14.
Working note:
(1) Calculate the average accounts receivables:
Calculate average collection period:
Therefore, average collection period is 71.01 days.
(b)
Compute merchandise inventory turnover ratio and average number of days to sell inventory.
(b)
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Explanation of Solution
Merchandise Inventory turnover ratio:
Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the merchandise inventory turnover ratio is as follows:
Days’ sales in inventory:
Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them.
Calculate merchandise inventory ratio:
Therefore, merchandise inventory ratio is 3.16.
Working note:
(2) Calculate average inventory:
Calculate average number of days to sell inventory:
Therefore, average number of days to sell inventory is 115.51 days.
(c)
Calculate asset turnover ratio.
(c)
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Explanation of Solution
Asset turnover ratio:
Asset turnover is a ratio that measures the productive capacity of the assets to generate the sales revenue for the company. Thus, it shows the relationship between the net sales and the average total assets. The formula to calculate the asset turnover ratio is as follows:
Calculate asset turnover ratio:
Therefore, asset turnover ratio is 1.34:1.
Working note:
(3) Calculate average assets:
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Chapter 24 Solutions
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
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- Identify which of the following six metrics a through f best completes questions 1 through 3 below. a. Days’ sales uncollected d. Return on total assets b. Accounts receivable turnover e. Total asset turnover c. Working capital f. Profit margin 1. Which two ratios are key components in measuring a company’s operating efficiency? Which ratio summarizes these two components? 2. What measure reflects the difference between current assets and current liabilities? 3. Which two short-term liquidity ratios measure how frequently a company collects its accounts?arrow_forwardCompute the following ratiosat December 31, 2019: i.Current ratio ii.Acid-test Ratio iii.Account Receivables Turnover iv.Average collection period v.Inventory Turnover vi.Days in inventory vii.Profit margin viii.Debts to Asset ratio ix.Return on Assets x.Times Interest Earnedarrow_forwardCalculate all from 1 to 15 the following ratios 1-Current Ratio 2-Quick Ratio 3-Cash Ratio 4-Receivables Turnover 5-Inventory Turnover 6-Payables Turnover 7-Debt-Equity Ratio 8-Debt Ratio 9-Total Asset Turnover 10-Fixed Asset Turnover 11-Equity Turnover 12-Gross Profit Margin 13-Operating Profit Margin 14-Net Profit Margin 15-ROA 16- ROE Balance sheet Group Parent Company 31 December 2018 31 March 2018 31 December 2018 31 March 2018 Notes RO RO RO RO ASSETS Non-current Property, plant and equipment 5 6,406,433 7,113,759 3,683,610 4,182,275 Investment in subsidiaries - - 515,750 515,750 Fixed deposit 9.1 1,048,399 - 1,048,399 - Deferred tax assets 27 675,393 537,722 727,632 602,078 Non-current assets 8,130,225 7,651,481 5,975,391 5,300,103 Current Inventories 6 4,481,209 3,832,010…arrow_forward
- Can you please check my workarrow_forwardThe balance sheet and income statement for the J. P. Robard Mfg. Company are as follows: LOADING... . Calculate the following ratios: Current ratio Times interest earned Inventory turnover Total asset turnover Operating profit margin Operating return on assets Debt ratio Average collection period Fixed asset turnover Return on equity J. P. Robard Mfg., Inc. Balance Sheet ($000) Cash $500 Accounts receivable 1,900 Inventories 1,020 Current assets $3,420 Net fixed assets 4,540 Total assets $7,960 Accounts payable $1,150 Accrued expenses 570 Short-term notes payable 260 Current liabilities $1,980 Long-term debt 1,910 Owners' equity 4,070 Total liabilities and owners' equity $7,960 (Click on the icon in order to copy its contents into a spreadsheet.) J. P. Robard Mfg., Inc. Income Statement ($000) Net sales (all credit) $8,040 Cost of goods…arrow_forwardCalculate all from 1 to 16 the following ratios 1-Current Ratio 2-Quick Ratio 3-Cash Ratio 4-Receivables Turnover 5-Inventory Turnover 6-Payables Turnover 7-Debt-Equity Ratio 8-Debt Ratio 9-Total Asset Turnover 10-Fixed Asset Turnover 11-Equity Turnover 12-Gross Profit Margin 13-Operating Profit Margin 14-Net Profit Margin 15-ROA 16- ROE Balance sheet Group Parent Company 31 December 31 December 31 December 31 December 2019 2018 2019 2018 Notes RO RO RO RO ASSETS Non-current Property, plant and equipment 5 6,383,389 6,406,433 3,832,861 3,683,610 Right-of-use assets 5 339,729 - 297,844 - Investment in subsidiaries - - 515,750 515,750 Investment in associate 8 67,500 - 67,500…arrow_forward
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