Butler-Huron Company’s balance sheet and income statement for last year are as follows: Balance Sheet (in Millions of Dollars) Assets Liabilities and Equity Cash and marketable securities $142 Accounts payable*** $808 Accounts receivable* 941 Accrued liabilities Inventories** 1,607 (salaries and benefits) 508 Other current assets 35 Other current liabilities 534 Total current assets $2,725 Total current liabilities $1,850 Plant and equipment (net) 3,029 Long-term debt and other Other assets 5,796 liabilities 2,228 Total assets $5,796 Common stock 146 Retained earnings 1,572 Total stockholders’ equity $1,718 Total liabilities and equity $5,796
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The Butler-Huron Company’s balance sheet and income statement for last year are as follows:
Balance Sheet (in Millions of Dollars)
Assets Liabilities and Equity
Cash and marketable securities $142 Accounts payable*** $808
Accounts receivable* 941 Accrued liabilities
Inventories** 1,607 (salaries and benefits) 508
Other current assets 35 Other current liabilities 534
Total current assets $2,725 Total current liabilities $1,850
Plant and equipment (net) 3,029 Long-term debt and other
Other assets 5,796 liabilities 2,228
Total assets $5,796 Common stock 146
Total
Total liabilities and equity $5,796
*Assume that all sales are credit sales and that average accounts receivable are the same
as ending accounts receivable.
**Assume that average inventory over the year was the same as ending inventory.
***Assume that average accounts payable are the same as ending accounts payable.
Income Statement (in Millions of Dollars)
Net sales $14,248
Cost of sales 10,777
Selling, general, and administrative expenses 1,950
Other expenses 868
Total expenses $13,595
Earnings before taxes 653
Taxes 261
Earnings after taxes (net income) $392
Assume that there are 365 days per year.
a. Determine Butler-Huron’s cash conversion cycle. Round intermediate calculations and answer to one decimal place.
_______ days
b. Determine Butler-Huron’s cash conversion cycle assuming that 75 percent of annual sales are credit sales (that is, 25% represent cash sales). Round intermediate calculations and answer to one decimal place.
_______ days
c. Determine Butler-Huron's cash conversion cycle assuming that 45 percent of annual sales are credit sales. Round immediate calculations and answer to one decimal place. _______ days
Step by step
Solved in 2 steps
Please look at part 3 (c) again. It is incorrect as shown.
Credit sales=45% sales= 0.45 x 14248
Cash conversion cycle=54.43+23.680.45−27.37=79.68 days54.43+23.680.45-27.37=79.68 days
Cash conversion cycle=79.68 days.
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