Question

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $56 on December 31, 20Y8. AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7 20Y8 20Y7 Sales $5,223,150 $4,812,320 Cost of goods sold (1,880,480) (1,730,040) Gross profit $3,342,670 $3,082,280 Selling expenses $(1,074,530) $(1,336,260) Administrative expenses (915,340) (784,780) Total operating expenses (1,989,870) (2,121,040) Operating income $1,352,800 $961,240 Other revenue and expense: Other income 71,200 61,360 Other expense (interest) (344,000) (189,600) Income before income tax $1,080,000 $833,000 Income tax expense (129,600) (99,600) Net income $950,400 $733,400 AUTOMOTIVE SOLUTIONS INC. Comparative Statement of Stockholders’ Equity For the Years Ended December 31, 20Y8 and 20Y7 20Y8 20Y7 Preferred Stock Common Stock Retained Earnings Preferred Stock Common Stock Retained Earnings Balances, Jan. 1 $900,000 $1,030,000 $4,234,575 $900,000 $1,030,000 $3,580,725 Net income 950,400 733,400 Dividends: Preferred stock (12,600) (12,600) Common stock (66,950) (66,950) Balances, Dec. 31 $900,000 $1,030,000 $5,105,425 $900,000 $1,030,000 $4,234,575 AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7 Dec. 31, 20Y8 Dec. 31, 20Y7 Assets Current assets: Cash $818,110 $931,190 Temporary investments 1,238,230 1,543,120 Accounts receivable (net) 1,014,700 956,300 Inventories 759,200 584,000 Prepaid expenses 154,780 186,240 Total current assets $3,985,020 $4,200,850 Long-term investments 3,088,745 1,014,120 Property, plant, and equipment (net) 5,590,000 5,031,000 Total assets $12,663,765 $10,245,970 Liabilities Current liabilities $1,328,340 $1,711,395 Long-term liabilities: Mortgage note payable, 8%, due in 15 years $1,930,000 $0 Bonds payable, 8%, due in 20 years 2,370,000 2,370,000 Total long-term liabilities $4,300,000 $2,370,000 Total liabilities $5,628,340 $4,081,395 Stockholders' Equity Preferred $0.70 stock, $50 par $900,000 $900,000 Common stock, $10 par 1,030,000 1,030,000 Retained earnings 5,105,425 4,234,575 Total stockholders' equity $7,035,425 $6,164,575 Total liabilities and stockholders' equity $12,663,765 $10,245,970 Instructions: Determine the following measures for 20Y8. Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the year.

Answer 1

Answer to Part 1.

Number of days' sales in Receivable = 365 * Average Accounts Receivable / Sales

Average Accounts Receivable = ($1,014,700 + $956,300)/ 2

Average Accounts Receivable = $985,500

Number of days'sales in Receivable = 365 * $985,500/ $5,223,150

Number of days' sales in Receivable = 68.9 days

Number of days' sales in Inventory = 365 * Average Inventory/ Cost of Goods sold

Average Inventory = ($759,200 + $584,000)/ 2

Average Inventory = $671,600

Number of days'sales in Inventory = 365 * $671,600/ $1,880,480

Number of days'sales in Inventory = 130.4 days

​​​​​