Question

1. Consider the following financial statement information for the Hop Corporation:

Item	Beginning						Ending
Inventory	$	10,800					$	11,800
Accounts receivable		5,800						6,100
Accounts payable		8,000						8,400
Net sales				$	88,000
Cost of goods sold					68,000

Calculate the operating cycle Calcuate the cash cycle

2.

Here are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash, and the amount.

COUNTRY KETTLES, INC. Balance Sheet
	2018				2019
Assets
Cash	$	30,900			$	30,040
Accounts receivable		70,400				73,480
Inventories		61,300				63,500
Property, plant, and equipment		152,000				161,800
Less: Accumulated depreciation		(46,320	)			(50,400	)
Total assets	$	268,280			$	278,420
Liabilities and Equity
Accounts payable	$	45,400			$	47,540
Accrued expenses		6,780				6,020
Long-term debt		26,100				28,750
Common stock		21,000				25,500
Accumulated retained earnings		169,000				170,610
Total liabilities and equity	$	268,280			$	278,420

Item Source/Use   Amount

Cash

Accounts receivable

Inventories

Property, plant, and equipment

Accounts payable

Accrued expenses

Long-term debt

Common stock

Accumulated retained earnings

Answer 1

Answer to Question 1:

Average Inventory = ($10,800 + $11,800) / 2
Average Inventory = $11,300

Average Accounts Receivable = ($5,800 + $6,100) / 2
Average Accounts Receivable = $5,950

Average Accounts Payable = ($8,000 + $8,400) / 2
Average Accounts Payable = $8,200

Accounts Receivable Period = 365 * Average Accounts Receivable / Net Sales
Accounts Receivable Period = 365 * $5,950 / $88,000
Accounts Receivable Period = 24.68 days

Accounts Payable Period = 365 * Average Accounts Payable / Cost of Goods Sold
Accounts Payable Period = 365 * $8,200 / $68,000
Accounts Payable Period = 44.01 days

Inventory Period = 365 * Average Inventory / Cost of Goods Sold
Inventory Period = 365 * $11,300 / $68,000
Inventory Period = 60.65 days

Operating Cycle = Accounts Receivable Period + Inventory Period
Operating Cycle = 24.68 days + 60.65 days
Operating Cycle = 85.33 days

Cash Cycle = Operating Cycle - Accounts Payable Period
Cash Cycle = 85.33 days - 44.01 days
Cash Cycle = 41.31 days