(1)
Compute days’ sales uncollected and comment on the changes in the ratios from prior year (1 year ago) to current year.
(1)
Explanation of Solution
Days’ sales uncollected: This ratio is used to determine the number of days a particular company takes to collect accounts receivables.
Determine days’ sales uncollected ratio:
For prior year (1 year ago):
For current year:
Analysis and comment on changes:
The days’ sales turnover has increased rapidly from 42.9 days (1 year ago) to 48.5 days (current year) and hence the ratio has worsened.
(2)
Compute
(2)
Explanation of Solution
Accounts receivable turnover: Receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. This ratio is determined by dividing credit sales and average accounts receivable.
Determine accounts receivable turnover ratio:
For prior year (1 year ago):
For current year:
Analysis and comment on changes:
The receivables turnover ratio declined from 9.4 times (1 year ago) to 8.9 times (current year) and hence the ratio has worsened.
(3)
Compute inventory turnover, and comment on the changes in the ratios from prior year (1 year ago) to current year.
(3)
Explanation of Solution
Inventory turnover: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.
Determine inventory turnover ratio:
For prior year (1 year ago):
For current year
Analysis and comment on changes:
The inventory turnover ratio declined from 5.1 times (1 year ago) to 4.2 times (current year) and hence the ratio has worsened.
(4)
Compute days’ sales in inventory and comment on the changes in the ratios from prior year (1 year ago) to current year.
(4)
Explanation of Solution
Days’ sales in inventory: Days’ in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.
Determine days’ sales in inventory ratio:
For prior year (1 year ago):
For current year:
Analysis and comment on changes:
The day’s in inventory has increased rapidly from 87.2 days (1 year ago) to 99.85 times (current year) and hence the ratio has worsened.
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Chapter 17 Solutions
Principles of Financial Accounting.
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