Question

Dunder Mifflin had the following balances in selected accounts at the end of 2015 and 2016.

	2015	2016
Cash	$58,000	$45,000
Short-term investments	46,000	39,000
Accounts receivable	54,000	61,000
Allowance for uncollectible accounts	3,500	5,000
Inventory	78,000	98,000
Accounts payable	91,000	102,000
Wages payable	17,000	25,000
Income tax payable	4,500	6,500
Note payable (due 2022)	100,000	100,000
Sales	415,000	525,000
Cost of goods sold	225,000	304,000

The accounts receivable at the end of 2014 were $50,000 and the allowance for uncollectible accounts was $2,500.

Required:

1. Calculate the acid test ratio for 2015 and 2016 for Dunder Mifflin.
2. Calculate the days sales in receivables for 2015 and 2016 for Dunder Mifflin.
3. Determine whether the acid-test ratio improved or deteriorated from 2015 to 2016.
4. Determine whether the collection period increased or decreased from 2015 to 2016.

Answer 1

B4 ДА В DE H Cash Short-term investments Accounts receivable Allowance for uncollectible accounts Current Assets excluding inventory 2015 $ 58,000 $ 46,000 $ 54,000 $3,500 $ 154,500 2016 $ 45,000 $ 39,000 $ 61,000 $5,000 $ 140,000 Accounts payable Wages payable Income tax payable Current Liabilities 2015 $ 91,000 $ 17,000 $ 4,500 $ 112,500 2016 $ 102,000 $ 25,000 $ 6,500 $ 133,500 2015 $ 415,000 2016 $ 525,000 Sales | Accounts receivable Allowance for uncollectible accounts Net Accounts receivable 2014 $ 50,000 $2,500 $ 47,500 2016 $ 61,000 $ 5,000 $ 56,000 2015 $ 54,000 $ 3,500 $ 50,500 2 3 2015 2016 formula acid test ratio 1.37 1.05 | Current Assets excluding inventory / Current Liabilities days sales in receivables (in days) 45.52 37.02 Average Net Accounts Receivable / Sales * 365 the acid-test ratio has deteriorated from 2015 to 2016 reason - because the acid test ratio has gone down from 1.37 in 2015 to 1.05 in 2016 the collection period decreased from 2015 to 2016 reason - because the collection period has gone down from 45.52 days in 2015 to 37.02 days in 2016

for formulas and calculations, refer to the image below -

B4 4 AB 2015 Cash 58000 Short-term investments 46000 Accounts receivable 54000 -Allowance for uncollectible accounts 3500 = Current Assets excluding inventory |=D3+D4+D5-D6 2016 45000 39000 61000 5000 =E3+4+E5-E6 Accounts payable Wages payable Income tax payable Current Liabilities 2015 91000 17000 4500 =D10+011+D12 2016 102000 25000 6500 =E10+E11+E12 " 2015 415000 2016 525000 Sales 2014 Accounts receivable 50000 - Allowance for uncollectible accounts 2500 Net Accounts receivable =D19-D20 2016 61000 5000 =E19-E20 2015 54000 3500 =F19-F20 2015 2016 formula acid test ratio =D7/D13 =E7/E13 Current Assets excluding inventory / Current Liabilities days sales in receivables (in days) =((D21+E21)/2)/D16*365 =((E21+F21)/2)/E16*365 Average Net Accounts Receivable / Sales * 365 the acid-test ratio has deteriorated from 2015 to 2016 reason - because the acid test ratio has gone down from 1.37 in 2015 to 1.05 in 2016 the collection period decreased from 2015 to 2016 reason - because the collection period has gone down from 45.52 days in 2015 to 37.02 days in 2016

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