Question

Required information Exercise 13-8 Liquidity analysis and interpretation LO P3 (The following information applies to the questions displayed below.) Simon Company's year-end balance sheets follow. 2017 2016 2015 At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 27,733 $ 32,418 $ 32,457 89,500 63,000 52,300 114,000 83,500 58,000 8,931 8,510 3,606 216,202 205,991 171,937 $ 456,366 $ 393,419 $ 318,300 117,044 $ 68,482 $ 43, 276 88,371 93, 20172,455 162,500 162,500 162,500 88,451 69,236 40,869 $ 456,366 $ 393,419 $ 318,300 The company's income statements for the years ended December 31, 2017 and 2016, follow. Assume that all sales credit: $ 593,276 For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses Net income Earnings per share $ 361,898 183,916 10,086 7.713 2016 $ 468, 169 $ 304,310 118,447 10, 768 7,023 440,548 $ 27,621 $ 1.70 563,613 $ 29,663 $ 1.83

Answer 1

1. Days' sales uncollected represent number of days it takes for company to collect cash from its customers.
Days' sales uncollected
	Choose numerator:	/	Choose denominator	*	Days	=	Days sales uncollected
	Average accounts receivable	/	Sales	*	365	=	Days sales uncollected
2017	$76,250	/	$593,276	*	365	=	46.91	days
2016	$57,650	/	$468,169	*	365	=	44.95	days
Average AR	(89500+63000)/2
Average AR	76250
Average AR	(63000+52300)/2
Average AR	57650
2. Accounts receivable turnover represent number of times in a year company collects its receivables.
Accounts receivable turnover
	Choose numerator:	/	Choose denominator	=	Accounts receivable turnover
	Sales	/	Average accounts receivable	=	Accounts receivable turnover
2017	$593,276	/	$76,250	=	7.78	times
2016	$468,169	/	$57,650	=	8.12	times
3. Inventory turnover represents number of times in a year company converts inventory into sales
Inventory turnover
	Choose numerator:	/	Choose denominator	=	Accounts receivable turnover
	Cost of goods sold	/	Average inventory	=	Inventory turnover
2017	$361,898	/	$98,750	=	3.66	times
2016	$304,310	/	$70,750	=	4.30	times
Average inventory	(114000+83500)/2	$98,750
Average inventory	(83500+58000)/2	$70,750
4. Days sales in inventory represent number of days it takes for company to convert its inventory into sales.
Days' sales in inventory
	Choose numerator:	/	Choose denominator	*	Days	=	Days sales uncollected
	Average inventory	/	Cost of goods sold	*	365	=	Days sales uncollected
2017	$98,750	/	$361,898	*	365	=	99.60	days
2016	$70,750	/	$304,310	*	365	=	84.86	days