Financial Accounting (12th Edition) (What's New in Accounting)
12th Edition
ISBN: 9780134725987
Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
Publisher: PEARSON
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Chapter 8, Problem 3QC
To determine
To identify: The correct option related to accounts payable turnover.
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Accounts payable turnover for Blue Industries increased from 10 to 12 during 2018. Whichof the following statements best describes what this means?a. The company paid its accounts payable more quickly in 2018, signaling a strongerliquidity position.b. The company paid its accounts payable more slowly in 2018, signaling a weakerliquidity position.c. Inventory turned over faster in 2018, meaning sales increased.d. Not enough information is provided to form a conclusion.
A firm’s balance sheets for the last two years are as follows (refer to image):
Sales in 20X1 were $250,000. Sales in 20X2 were $250,000.
a. Based solely on the current ratio and the quick ratio, has the firm’s liquidity position deteriorated or improved?
b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know?
c. Without doing a calculation, has inventory turnover deteriorated? How do you know?
d. If the firm earned $5,000 during 2012, what proportion of those earningswere distributed?
1))For the years ended December 31, 2018 of your analysis, assume all sales are on credit and then compute the following:
· (a) collection period,
· (b) accounts receivable turnover,
· (c) inventory turnover, and
· (d) days' sales in inventory.
· (e) Based on your estimates, comment on the changes in the ratios from 2018 year by drawing conclusion regarding efficiency in managing inventory and in collecting receivables (Note: Comment not more than 10 lines).
2))Provide your recommendations for improving the financial condition of your company. (Note: Comment not more than 10 lines).
Chapter 8 Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
Ch. 8 - All of the following are reported as current...Ch. 8 - Prob. 2QCCh. 8 - Prob. 3QCCh. 8 - What is accounts payable turnover? a.Purchases on...Ch. 8 - Prob. 5QCCh. 8 - Nicholas Corporation accrues the interest expense...Ch. 8 - Phoebe Corporation signed a six-month note payable...Ch. 8 - Prob. 8QCCh. 8 - Backpack Co. was organized to sell a single...Ch. 8 - Prob. 10QC
Ch. 8 - Potential liabilities that depend on future events...Ch. 8 - A contingent liability should be recorded in the...Ch. 8 - Prob. 8.1ECCh. 8 - Prob. 8.1SCh. 8 - Prob. 8.2SCh. 8 - Prob. 8.3SCh. 8 - Prob. 8.4SCh. 8 - (Learning Objective 3: Account for a short-term...Ch. 8 - Prob. 8.6SCh. 8 - (Learning Objective 4: Report warranties in the...Ch. 8 - (Learning Objective 4: Account for accrued...Ch. 8 - (Learning Objective 5: Interpret a companys...Ch. 8 - Prob. 8.10AECh. 8 - Prob. 8.11AECh. 8 - LO 3 (Learning Objective 3: Purchase inventory,...Ch. 8 - (Learning Objective 3: Record note payable...Ch. 8 - (Learning Objective 3: Account for a short-term...Ch. 8 - Prob. 8.15AECh. 8 - Prob. 8.16AECh. 8 - Prob. 8.17AECh. 8 - Prob. 8.18AECh. 8 - Prob. 8.19AECh. 8 - Prob. 8.20BECh. 8 - Prob. 8.21BECh. 8 - LO 3 (Learning Objective 3: Purchase inventory,...Ch. 8 - Prob. 8.23BECh. 8 - Prob. 8.24BECh. 8 - Prob. 8.25BECh. 8 - Prob. 8.26BECh. 8 - Prob. 8.27BECh. 8 - (Learning Objectives 1, 2, 3, 4: Report current...Ch. 8 - Prob. 8.29BECh. 8 - Prob. 8.30QCh. 8 - For the purpose of classifying liabilities as...Ch. 8 - Prob. 8.32QCh. 8 - Prob. 8.33QCh. 8 - Prob. 8.34QCh. 8 - Prob. 8.35QCh. 8 - Prob. 8.36QCh. 8 - Prob. 8.37QCh. 8 - Prob. 8.38QCh. 8 - Prob. 8.39QCh. 8 - Prob. 8.40QCh. 8 - Prob. 8.41QCh. 8 - Prob. 8.42QCh. 8 - Prob. 8.43QCh. 8 - Group A LO 1, 2, 3, 4 (Learning Objective 1, 2, 3,...Ch. 8 - Prob. 8.45APCh. 8 - LO 1, 2, 3, 4 (Learning Objectives 1, 2, 3, 4:...Ch. 8 - LO 4, 5 (Learning Objectives 4, 5: Account for...Ch. 8 - Group B LO 1, 2, 3, 4 (Learning Objectives 1, 2,...Ch. 8 - Prob. 8.49BPCh. 8 - Prob. 8.50BPCh. 8 - Prob. 8.51BPCh. 8 - Prob. 8.52CEPCh. 8 - Prob. 8.53SCCh. 8 - Prob. 8.54DCCh. 8 - Prob. 8.55DCCh. 8 - Prob. 8.56EICCh. 8 - Prob. 1FFCh. 8 - Prob. 1GP
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- Calculate ratios related to how quickly the company pays its trade debt and how quickly it collects from its customers. These are known as Accounts Payable (AP) Turnover and Accounts Receivable (AR) Turnover. The formula for AP Turnover is: Cost of Goods Sold/average accounts payable. The formula for AR Turnover is: credit sales/average accounts receivable. Calculate the AP and AR Turnover for each of 2011-2014. Interpret your calculations: what does this information mean? How is the company doing?arrow_forwardMain assumptions:• Sales has increased by 25% in 2017• "Cost of good sold" is 80% of sales in the income statement at all times. All other items are independent of sales.• Each current asset and acoounts payable are fractions of sales in the balance sheet. All other items are independent of sales.• Current ratio is 3, accounts receivable turnover is 2, inventory turnover is 4, accounts payable turnover 5 at all times. Turnovers are calculated with rescpect to the current period balances without averaging with pays year balances.• Throughout the year 2017:-the company raised funds through short-term debt first.- the company raised the remaining funds through 50% long-term debt and 50% equity offering (common stock).Consider the following financial statements (in millions of TL). In 2016, the company did not pay any dividends. What is the cash conversion cycle in year 2017? (1 year = 360 days) A) 18 daysB) 198 daysC) 162 daysD) 342 daysE) otherarrow_forwardDuring 2014, a company wrote off $6,000 in uncollectible accounts receivable. At the end of the year, they estimated bad debt expense using a percent of gross sales. In 2015, the company recovered a $1,000 account that was written off in 2014. The recording of this recovery would include a a. Debit to retained earnings b. Credit to accounts receivable c. Debit to allowance for doubtful accounts d. Credit to prior period adjustmentsarrow_forward
- Based on table below , is your company doing better or worse than last year? Explain your answer. 2019 2018 Ratio Category 1. Current ratio 0.67 0.64 Liquidity 2. Quick ratio / Acid-test ratio 0.58 0.54 Liquidity 3. Accounts receivable turnover 27.12 n/a Liquidity 4. Days' sales uncollected 17.70 9.40 Liquidity 5. Equity ratio 38% 38% Solvency 6. Debt ratio 62% 62% Solvency 7. Debt-to-equity ratio 1.63 1.66 Solvency 6. Gross Margin Ratio 13% 15% Profitability 9. Profit margin ratio 10.00% 11.22% Profitability 10. Total asset turnover 0.86 n/a Liquidity 11. Return on total assets 9% n/a Profitability 12. Return on common stockholders' equity 23% n/a Profitabilityarrow_forwardDuring 2014, SABA Company had net sales of $11,400,000. Most of the sales were on credit. At the end of 2014, the balance of Accounts Receivable was $1,400,000 and Allowance for Uncollectible Accounts had a debit balance of $48,000. SABA Company’s management uses two methods of estimating uncollectible accounts expense: the percentage of net sales method and the accounts receivable aging method. The percentage of uncollectible sales is 1.5 percent of net sales, and based on an aging of accounts receivable, the end-of-year uncollectible accounts total $140,000. Show your computations.arrow_forwardWinston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2015 sales (all on credit) were $127,000 and its cost of goods sold was 75% of sales. It turned over its inventory 8.21 times during the year. Its receivables balance at the end of the year was $13,176.01 and its payables balance at the end of the year was $7,390.04. Using this information calculate the firm's cash conversion cycle. Do not intermediate calculations. Round your answer to the nearest whole number. daysarrow_forward
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