The 2018 and 2019 balance sheets for Grayson Industries showed Cash of $8,000 and $9,500 respectively, Accounts Receivable of $13,000 and $15,000, respectively, Inventory of $12,000 and $9,000, respectively, and Accounts Payable of $5,500 and $7,500, respectively. Its 2019 Income Statement showed Net Sales of $104,000, Cost of Goods Sold of $62,000, and Net Income of $27,000. What is the cash

Question

conversion cycle for 2019? (Assume all Sales are credit sales. Round any intermediary calculations to two decimal places and your final answer to the nearest day.)

A) 149 days
B) 51 days
C) 26 days
D) 73 days

Answer 1

D) 73 days
Explanation: [average inventory/(cogs/365)] + [average net A/R/(net credit sales/365)] - [average A/P/(cogs/365)];
ex: [[($12,000 + $9,000) / 2] / ($62,000 /365)] + [[($13,000 + $15,000) / 2] / ($104,000 /365)] - [[($5,500 + $7,500) / 2] / ($62,000 /365)] = ($10,500 / 169.86) + ($14,000 / 284.93) - ($6,500 / 169.86) = [61.82 + 49.13 - 38.27] = 73 days