Question

Sheridan Company has these comparative balance sheet data: SHERIDAN COMPANY Balance Sheets December 31 2022 2021 Cash $ 24,510 $ 49,020 Accounts receivable (net) 114,380 98,040 Inventory 98,040 81,700 Plant assets (net) 326,800 294,120 $563,730 $522,880 $81,700 $98,040 Accounts payable Mortgage payable (15%) 163,400 163,400 Common stock, $10 par Retained earnings 228,760 196,080 89,870 65,360 $563,730 $522,880 Additional information for 2022:

Answer 1

Computing the following Ratios at December 31,2022:-

(a) Calculations for Current Ratio:-

Current Ratio=(Current Assets /Current Liabilities)

Current Assets=(Cash+Accounts Receivable (net)+Inventory)

=($24,510+$114,380+$98,040)

=$236,930

Current Liabilities=Accounts Payable

=$81,700

Current Ratio=($236,930/$81,700)

=2.9 : 1

(b) Calculations for Accounts Receivable Turnover:-

Accounts Receivable Turnover=(Net Sales/Average Accounts Receivable)

Average Accounts Receivable=(Opening Accounts Receivable+Ending Accounts Receivable)/2

=($98,040+$114,380)/2

=($212,420/2)

=$106,210

Net Sales=(Sales on Accounts - Sales Returns and Allowances)

=($384,100-$28,500)

=$355,600

Accounts Receivable Turnover=($355,600/$106,210)

=3.3 Times

(c) Calculations for Average Collection Period:-

Average Collection Period=(Days In Year/Accounts Receivable Turnover)

=(365days /3.3)

=110.6 Days or 111 Days

(d) Calculations for Inventory Turnover:-

Inventory Turnover=(Cost of Goods Sold/ Average Inventory)

Average Inventory=(Opening Inventory+Ending Inventory)/2

=($81,700+$98,040)/2

=($179,740/2)

=$89,870

Inventory Turnover Ratio=($221,200/$89,870)

=2.46 Times

(e) Calculations for Days In Inventory:-

Days In Inventory=(Days In Year/Inventory Turnover Ratio)

=(365 days/2.46)

=148.3 Days or 148 Days

(f) Calculations for Free Cash Flow:-

Free Cash Flow=(Net Cash provided by Operating Activities - Capital Expenditures)

=($58,700-$29,400)

=$29,300