The following information applies to Markham Company: Assets Cash$6,000 Accounts receivable 13,000 Inventory 16,000 Plant and equipment, net 21,000 Land 19,000 Total assets$75,000 Liabilities and stockholders' equity Accounts payable$5,000 Salaries payable 10,000 Bonds payable (due 2020) 12,000 Capital stock, no par 23,000 Retained earnings 25,000 Total liabilities and stockholders' equity$75,000 Additional information: Net credit sales equal $220,000 and beginning accounts receivable were $11,000. Required: Compute Markham's:(a) Quick ratio(b) Current ratio(c) Working capital(d) Accounts receivable turnover(e) Average days to collect receivablesRound your answers to two decimal places.
What will be an ideal response?
(a) Quick ratio = ($6,000 + $13,000) ÷ ($5,000 + $10,000) = 1.27
(b) Current ratio = ($6,000 + 13,000 + $16,000) ÷ ($5,000 + $10,000) = 2.33
(c) Working capital = ($6,000 + $13,000 + $16,000) ? ($5,000 + $10,000) = $20,000
(d) Accounts receivable turnover = $220,000 ÷ (($11,000 + $13,000) ÷ 2) = 18.33 times
(e) Average days to collect receivables = 365 ÷ 18.33 = 19.91
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