Inverness Steel Corporation is a producer of flat-rolled carbon, stainless and electrical steels, and tubular products. The company's income statement for the 2021 fiscal year reported the following information ($ in millions): Sales $ 6,255 Cost of goods sold 5,190 The company's balance sheets for 2021 and 2020 included the following information ($ in millions): 2021 2020 Current assets: Accounts receivable, net $ 703 $ 583 Inventories 880 808 The statement of cash flows reported bad debt expense for 2021 of $8 million. The summary of significant accounting policies included the following notes ($ in millions): Accounts Receivable (in part)The allowance for uncollectible accounts was $10 and $7 at December 31, 2021 and 2020, respectively. All sales are on credit. InventoriesInventories are valued at the lower of cost or market. The cost of the majority of inventories is measured using the last-in, first-out (LIFO) method. Other inventories are measured principally at average cost and consist mostly of foreign inventories and certain raw materials. If the entire inventory had been valued on an average cost basis, inventory would have been higher by $480 and $350 at the end of 2021 and 2020, respectively.During 2021, 2020, and 2019, liquidation of LIFO layers generated income of $6, $7, and $25, respectively. Required:1. Determine the amount of accounts receivable Inverness wrote off during 2021. (Enter your answer in millions.)2. Calculate the amount of cash collected from customers during 2021. (Enter your answer in millions.)3. Calculate what cost of goods sold would have been for 2021 if the company had used average cost to value its entire inventory. (Enter your answer in millions.)4. Calculate the receivables turnover ratio, the inventory turnover ratio, and the gross profit ratio for 2021. (Round "Receivables turnover ratio" and "Inventory turnover ratio" answers to 2 decimal places. Round "Gross profit ratio" answer to nearest percent (i.e., 0.123 needs to be entered as 12%).)
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.
Inverness Steel Corporation is a producer of flat-rolled carbon, stainless and electrical steels, and tubular products. The company's income statement for the 2021 fiscal year reported the following information ($ in millions):
| Sales | $ | 6,255 | |
| Cost of goods sold | 5,190 | ||
The company's balance sheets for 2021 and 2020 included the following information ($ in millions):
| 2021 | 2020 | |||||
| Current assets: | ||||||
| $ | 703 | $ | 583 | |||
| Inventories | 880 | 808 | ||||
The statement of cash flows reported
Accounts Receivable (in part)
The allowance for uncollectible accounts was $10 and $7 at December 31, 2021 and 2020, respectively. All sales are on credit.
Inventories
Inventories are valued at the lower of cost or market. The cost of the majority of inventories is measured using the last-in, first-out (LIFO) method. Other inventories are measured principally at average cost and consist mostly of foreign inventories and certain raw materials. If the entire inventory had been valued on an average cost basis, inventory would have been higher by $480 and $350 at the end of 2021 and 2020, respectively.
During 2021, 2020, and 2019, liquidation of LIFO layers generated income of $6, $7, and $25, respectively.
Required:
1. Determine the amount of accounts receivable Inverness wrote off during 2021. (Enter your answer in millions.)
2. Calculate the amount of cash collected from customers during 2021. (Enter your answer in millions.)
3. Calculate what cost of goods sold would have been for 2021 if the company had used average cost to value its entire inventory. (Enter your answer in millions.)
4. Calculate the receivables turnover ratio, the inventory turnover ratio, and the gross profit ratio for 2021. (Round "Receivables turnover ratio" and "Inventory turnover ratio" answers to 2 decimal places. Round "Gross profit ratio" answer to nearest percent (i.e., 0.123 needs to be entered as 12%).)
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