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Cornerstones of Financial Accounti...

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Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Asset Efficiency Ratios

Refer to financial statements in Exercise 12-76 and the information below.

Chapter 12, Problem 80E, Asset Efficiency Ratios Refer to financial statements in Exercise 12-76 and the information below.

Required:

1. Compute the three asset efficiency ratios (rounded to two decimal places) for 2018 and 2019.

2. Indicate the length of Steele’s operating cycle in days (rounded to two decimal places) for the years ended December 31, 2019. and December 31, 2018.

To determine

(a)

Introduction:

Asset efficiency ratio measures the efficiency with which company uses its assets. This ratio helps in measuring the turnover i.e. it calculates the average length of time that is required for the asset to be used or replaced.

To find:

Asset efficiency ratio of Steele’s for 2018 and 2019.

Explanation

Account Receivable turnover ratio:

Average account receivable= Opening account receivable+ closing account receivable2

Average account receivable for 2019 $837,377+$1,056,911 2

= $947,144

Average account receivable for 2018 $752,945+$837,377 2

= $795,161

Accounts Receivable Turn-over ratio=Net credit sales or net salesAverage account Receivable

Account receivable turnover ratio for 2019 $7,245,088 $947,144

= 7.64 times

Account receivable turnover ratio for 2018 $6,944,296$795,161

= 8.73 times

Inventory Turnover ratio:

Average Inventory = Opening inventory+closing inventory2

Average inventory for 2019  = $803,707+$733,7002

= $768,703.5

Average inventory for 2018  = $698,604+$803,7072

= $746,655.5

Inventory turnover ratio= Cost of goods soldAverage inventory

Inventory turnover ratio for 2019  = $5,486,253$768,703

To determine

(b)

To indicate:

Steele’s operating cycle in days for the year 2018 and 2019.

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