IE Exercise $13-8($Static$)$: Analyzing and interpreting liquidity LO P$3$

Simon Company$$s year$-$end balance sheets follow.

At December $31$ Current Year $1$ Year Ago $2$ Years Ago

Assets

Cash $ $31,800$ $ $35,625$ $ $37,800$

Accounts receivable, net $89,50062,50050,200$

Merchandise inventory $112,50082,50054,000$

Prepaid expenses $10,7009,3755,000$

Plant assets, net $278,500255,000230,500$

Total assets $ $523,000$ $ $445,000$ $ $377,500$

Liabilities and Equity

Accounts payable $ $129,900$ $ $75,250$ $ $51,250$

Long$-$term notes payable $98,500101,50083,500$

Common stock, $$10$ par value $163,500163,500163,500$

Retained earnings $131,100104,75079,250$

Total liabilities and equity $ $523,000$ $ $445,000$ $ $377,500$

The company$$s income statements for the current year and one year ago follow. Assume that all sales are on credit:

For Year Ended December $31$ Current Year $1$ Year Ago

Sales $ $673,500$ $ $532,000$

Cost of goods sold $ $411,225$ $ $345,500$

Other operating expenses $209,550134,980$

Interest expense $12,10013,300$

Income tax expense $9,5258,845$

Total costs and expenses $642,400502,625$

Net income $ $31,100$ $ $29,375$

Earnings per share $ $1\mathrm{.}90$ $ $1\mathrm{.}80$

For both the current year and one year ago, compute the following ratios:

$(1-$a$)$ Compute days' sales uncollected.

$(1-$b$)$ Determine if days' sales uncollected improved or worsened in the current year.

$(2-$a$)$ Compute accounts receivable turnover.

$(2-$b$)$ Determine if accounts receivable turnover ratio improved or worsened in the current year.

$(3-$a$)$ Compute inventory turnover.

$(3-$b$)$ Determine if inventory turnover ratio improved or worsened in the current year.

$(4-$a$)$ Compute days' sales in inventory.

$(4-$b$)$ For each ratio, determine if days' sales in inventory improved or worsened in the current year.