(Determining the effects of transactions on ratios, LO 2) You have been provided with the following information about Yarker Ltd. (Yarker).

Required:

a. Calculate the accounts receivable, inventory, and accounts payable turnover ratios for 2005 through 2007.

b. Calculate the average collection period of accounts receivable, average number of days inventory on hand, and average payment period for accounts payable for 2005 through 2007.

c. Determine Yarker’s cash lag for 2005 through 2007.

d. Interpret the results you obtained in parts

(a) through (c). What do these results tell you about Yarker’s liquidity over the last three years?

e. What are some possible explanations for the results?

f. Suppose you are a banker whom Yarker’s management approached about an expanded line of credit. How would the results you obtained in parts (a)
through

(c) affect your decision? Explain.

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Accounts receivable Inventory Accounts payable Revenue Cost of sales $ 1,125,000 $ 1,215,000 $ 1,275,750 2004 2005 2006 2007 $1,339,538 2,593,500 100,000 10,000,000 101,920 10,500,000 104,876 97,639 10,290,000 9,775,500 2,500,000 2,600,000 2,730,000 4,000,000 4,179,000 4,074,943 3,851,840