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
= $580 - $320 = $260

b.Current ratio = Current assets ÷ Current liabilities
= $580 ÷ $320 = 1.81

c.Acid-test (quick) ratio = Quick assets* ÷ Current liabilities
= $350 ÷ $320 = 1.09

*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*
= $1,200 ÷ $190 = 6.32

*Average accounts receivable = ($190 + $190) ÷ 2 = $190

e.Average collection period = 365 days ÷ Accounts receivable turnover (see above)
= 365 days ÷ 6.32 = 57.8 days

f.Inventory turnover = Cost of goods sold ÷ Average inventory balance*
= $800 ÷ $135 = 5.93

*Average inventory balance = ($140 + $130) ÷ 2 = $135

g.Average sale period = 365 days ÷ Inventory turnover (see above)
= 365 days ÷ 5.93 = 61.6 days

Business

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