E13-21A

(Learning Objective 5: Compute ratios; evaluate turnover, liquidity, and current debt-paying ability) The financial statements of Family News, Inc., include the following items

? Requirements

1.Compute the following ratios for 2012 and 2011:

a.Current ratio

b.Quick (acid test) ratio

c.Inventory turnover and days inventory outstanding (DIO)

d.Accounts receivable turnover

e.Days sales in average receivables or days sales outstanding (DSO)

f.Accounts payable turnover and days payable outstanding (DPO)

g.Cash conversion cycle (in days)

(When computing days, round your answer to the nearest whole number.)

2.Evaluate the companys liquidity and current debt-paying ability for 2012. Has it improved or deteriorated from 2011?

3.As a manager of this company, what would you try to improve next year?

2012 2011 2010 Balance sheet: Cash Short-term investments.... . 53,000 17,000 77,000 90,000 8,000 245,000 Accounts Payable65,000 tics131,000 21,000 80,000 72,000 6,000 55,000 60,000 Inventory Inventory Prepaid expens245,000 268,000 Prepaid expens Total current assets. Accounts Payab ,000 s0,000 90,000 Income statement Net credit sales Cost of goods sod.276,000 280,000 254,000 les.$ $494,000 $502,000 $480,000