Question

Nordstrom, Inc. 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 $ 1,441 $ 137 Accounts receivable (net) 3,900 3,700 Inventory 1,700 1,700 Other current assets 619 576 Total current assets $7,660 $6,113 Total current liabilities $3,830 $3,042 For the year, net credit sales were $15,580 million, cost of goods sold was $10,200 million, and net cash provided by operating activities was $1,273 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 answers to 1 decimal place, e.g. 1.6.) Current ratio :1 Accounts receivable turnover times Average collection period days Inventory turnover times Days in inventory days

Answer 1

Answer and Explanation:

The computation is shown below:

1. Current ratio

Current ratio = Total Current assets ÷ total current liabilities  

= $7,660 ÷ $3,830

= 2 times

2. Account receivable turnover

= Net credit sales ÷ Average accounts receivable  

where,  

Net credit sales is $15,580 million

And, the Average accounts receivable would be  

= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2  

= ($3,700 + $3,900) ÷ 2  

= $3,800

So, the accounts receivable turnover ratio would be  

= $15,580 ÷ $3,800

= 4.1 times

3. Average collection period is

= 365 days ÷ account receivable turnover

= 365 days ÷ 4.1 times

= 89.02 days

4. Inventory turnover ratio

= Cost of goods sold ÷ Average inventory

where,  

Cost of goods sold is $10,200 million

And, the Average inventory would be  

= (Inventory, beginning of year + Inventory, end of year) ÷ 2  

= ($1,700 + $1,700) ÷ 2  

= $1,700

So, the inventory turnover ratio would be  

= $10,200 ÷ $1,700

= 6 times

5. days in inventory  is

= 365 days ÷ inventory turnover

= 365 days ÷ 6 times

= 60.83 days

We considered 365 days in a year