Excerpts from Candle Corporation's most recent balance sheet (in thousands of dollars) appear below: Year 2Year 1Current assets: Cash$160 $100 Accounts receivable, net 190 190 Inventory 140 130 Prepaid expenses 90 90 Total current assets$ 580 $ 510 Current liabilities: Accounts payable$200 $180 Accrued liabilities 30 30 Notes payable, short term 90 80 Total current liabilities$ 320 $ 290 Sales on account during the year totaled $1,200 thousand. Cost of goods sold was $800 thousand.Required:Compute the following for Year 2:a. Working capital.b. Current ratio.c. Acid-test (quick) ratio.d. Accounts receivable turnover.e. Average collection period.f. Inventory turnover.g. Average sale period.
What will be an ideal response?
| a. | Working capital = Current assets - Current liabilities |
| b. | Current ratio = Current assets ÷ Current liabilities |
| c. | Acid-test (quick) ratio = Quick assets* ÷ Current liabilities |
*Quick assets
= Cash + Marketable securities + Accounts receivable + Short-term notes receivable
= $160 + $0 + $190 + $0 = $350
| d. | Accounts receivable turnover = Sales on account ÷ Average accounts receivable* |
*Average accounts receivable = ($190 + $190) ÷ 2 = $190
| e. | Average collection period = 365 days ÷ Accounts receivable turnover (see above) |
| f. | Inventory turnover = Cost of goods sold ÷ Average inventory balance* |
*Average inventory balance = ($140 + $130) ÷ 2 = $135
| g. | Average sale period = 365 days ÷ Inventory turnover (see above) |
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