Question
Account receivable (net) 70,000 80,000 Inventory 80,000 150,000 Current liabilities 100,000 110,000 Assume the year-end balances for accounts receivable and for inventory also represent the
Account receivable (net) 70,000 80,000 Inventory 80,000 150,000 Current liabilities 100,000 110,000 Assume the year-end balances for accounts receivable and for inventory also represent the average balances for these items throughout the year. Instructions
(a)For each of the two companies, compute the following:
(1) Working capital
(2) Current ratio
(3) Quick ratio
(4) Number of times inventory turned over during the year and the average number of days required to sell the inventory.
(5) Number of times accounts receivable turned over during the year and the average number of days required to collect accounts receivable.
(6) Length of the operating cycle
(7) Following your analysis of the two companies you completed, which company would you give a 30 day open account of $100,000.
Your answer should be precise and differentiate the liquidity of both companies. Note: For all calculations, round to 1 decimal place and show all work.
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