Question

Simon Company’s year-end balance sheets follow.
At December 31 2015 2014 2013
Assets
Cash $ 31,800 $ 35,625 $ 37,800
Accounts receivable, net 89,500 62,500 50,200
Merchandise inventory 112,500 82,500 54,000
Prepaid expenses 10,700 9,375 5,000
Plant assets, net 278,500 255,000 230,500
Total assets $ 523,000 $ 445,000 $ 377,500
Liabilities and Equity
Accounts payable $129,900 $ 75,250 $ 51,250
Long-term notes payable secured by
mortgages on plant assets 98,500 101,500 83,500
Common stock, $10 par value163,500 163,500 163,500
Retained earnings 131,100 104,750 79,250
Total liabilities and equity$ 523,000 445,000 $ 377,500
The company’s income statements for the years ended December 31, 2015 and 2014, follow. Assume that all sales are on credit:
For Year Ended December 31 2015 2014
Sales $673,500 $532,000
Cost of goods sold $ 411,225 345,500
Other operating expenses 209,550 134,980
Interest expense 12,100 13,300
Income taxes 9,525 8,845
Total costs and expenses 642,400 502,625
Net income $ 31,100 $29,375
Earnings per share 1.90 $ 1.80
(1) Compute accounts receivable turnover.
(2) Compute inventory turnover.
(3) Compute days' sales in inventory.

Answer 1

Answer and Explanation:

The computations are given below:

As we know that

(1) The Account receivable turnover ratio is

= Net sales ÷ average account receivable

So

For 2015, it is

= $673,500 ÷ ($89,500 + $62,500) ÷ 2

= 8.86 times

For 2014, it is

= $532,000 ÷ ($62,500+$50,200) ÷ 2

= 9.44 times

(2) The inventory turnover ratio is

= Cost of goods sold ÷ average inventory

For 2015

= $411,225 ÷ ($112,500 + $82,500) ÷ 2

= 4.22 times

For 2014

= $345,500 ÷ ($82,500 + $54,000) ÷

= 5.06 times

(3) The days sales in inventory is

= Ending inventory ÷ cost of goods sold × 365

For 2015, it is

= $112,500 ÷ $411,225 × 365

= 99.85 days

For 2014, it is  

= $82,500 ÷ $345,500 × 365

= 87.16 days