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Home Q & A Board Other Fields Homework Help Business Accounting
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jdot jdot
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4 months ago
Selected financial statement data for Oran Company are presented below.

​​December 31, 2021December 31, 2020
Cash$  40,000$  30,000
Short-term investments25,00018,000
Receivables (net)100,00080,000
Inventories85,00065,000
Total current liabilities100,00090,000
During 2021, net sales were $950,000, and cost of goods sold was $775,000.

Required:

a.Compute the following ratios at December 31, 2021:
(1)Current ratio
(2)Acid-test ratio
(3)Average collection period
(4)Average days to sell inventory
b.Assume credit terms are 2/10, net 30. What conclusion could an analyst draw about
the management of accounts receivable?
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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jarste123jarste123
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More solutions for this book are available here
a.(1)Current ratio = ($40,000 + $25,000 + $100,000 + $85,000) ÷ $100,000 = 2.5 to 1
(2)Acid-test ratio = ($40,000 + $25,000 + $100,000) ÷ $100,000 = 1.65 to 1
(3)A/R turnover = $950,000 ÷ [($100,000 + $80,000) ÷ 2] = 10.56 times
​Average collection period = 365 ÷ 10.56 = 34.6 days
(4)Inventory turnover = $775,000 ÷ [($85,000 + $65,000) ÷ 2] = 10.33 times
​Average days to sell inventory = 365 ÷ 10.33 = 35.3 days
b.The average collection period exceeds the normal credit period of 30 days. Therefore,
the management of accounts receivable needs to be improved.
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