Question

The income statement for Ugg Company for the year ending 30 June 2017 is detailed below.

Sales revenue		$430,000
Cost of sales		330,000
Gross profit		100,000
Operating expenses		64,000
Profit		$36,000

The operating expenses include $16,100 of interest expense.

The following amounts have been extracted from the company’s balance sheet at 30 June

2017:

Accounts receivable		$63,000
Prepaid expenses		3,600
Cash		7,800
Inventory		43,000
Bank overdraft		5,800
Accounts payable		51,000
Accrued expenses		2,500

Calculate the following: (Round current ratio & quick ratio to 2 decimal places, e.g. 15.52 and all others answers to 0 decimal places, e.g. 15. Use 365 days for calculation. Do not deduct bank overdraft from your calculation for quick ratio.)

i.	Days inventory		$//img.homeworklib.com/questions/3dcc9870-5d07-11ea-a2cf-61fb6bf32d8a.gif?x-oss-process=image/resize,w_560$	days
ii.	Days debtors		$//img.homeworklib.com/questions/3dcc9870-5d07-11ea-a2cf-61fb6bf32d8a.gif?x-oss-process=image/resize,w_560$	days
iii.	Current ratio		$//img.homeworklib.com/questions/3dcc9870-5d07-11ea-a2cf-61fb6bf32d8a.gif?x-oss-process=image/resize,w_560$	times
iv.	Quick ratio		$//img.homeworklib.com/questions/3dcc9870-5d07-11ea-a2cf-61fb6bf32d8a.gif?x-oss-process=image/resize,w_560$	times

Answer 1

i.	Days inventory = Closing Inventory/ Cost of good Sold x 365	43000/330000 x 365	47.56	days
ii.	Days debtors = Accounts Receivables/ Sales x 365	$63,000/$430,000 x 365	53.48	days
iii.	Current ratio = Current Assets / Current Liabilities	$63000+3600+7800+43000+5800/(51000+2500)	2.30	times
iv.	Quick ratio	$63000+43000+5800/(51000+2500)	1.43	times