The balance sheet of the Sunshine Corp. includes the following items (in dollars; the full balance sheet is not shown here):

Assume the company had net income of $7,000 and sales of $90,000. The cost of goods sold was $60,000.
A. Compute the current ratio. The formula for this is current assets divided by current liabilities.
B. Assume the company uses $40,000 of cash to repay current liabilities just before year end. What would the current ratio be?
C. Compute the number of days’ sales on hand at the end of the year. The formula for this is 365 × (ending receivables ÷ sales.)
D. Assume that, just before the end of the year, the company sells $10,000 of its accounts receivable to a financial institution, and receives cash of $9,500 in exchange. Compute the number of days’ sales on hand at the end of the year after this transaction.
E. Compute the number of days of inventory on hand at the end of the year. The formula is 365 × (ending inventory ÷ cost of goods sold.)
F. Assume that, just before the end of the year, the company sells 25,000 of its inventory to another company in the business for the cost of $25,000, and secretly agrees to buy the inventory back after year end for $25,500. Compute the number of days of inventory on hand at the end of the year.

Transcribed Image Text:

Cash 50,000 Accounts receivable 30,000 Inventory 60,000 Total current assets 140,000 Noncurrent assets 260,000 Total assets 400,000 Current liabilities 100,000 Noncurrent liabilities 230,000 Equity 70,000 Total liabilities and equity 400,000