Problem 14.9A

PROBLEM 14.9A Ratios: Evaluation of Two Companies Shown are selected financial data for Another World and Imports, Inc., at the end of the current year. Another Imports World Inc. Net credit sales $675,000 $560,000 Cost of goods sold 504,000 480,000 Cash .. 53,000 22,000 Accounts receivable (net) 75,000 70,000 Inventory . . 84,000 160,000 Current liabilities 105,000 100,000 Assume that the year-end balances shown for accounts receivable and for inventory approximate the average balances of these items throughout the year. Instructions a. For each of the two companies, compute the following. 1. Working capital. 2. Current ratio. 3. Quick ratio. 4. Number of times inventory turned over during the year and the average number of days required to turn over inventory (round computation to the nearest day). 5. Number of times accounts receivable turned over during the year and the average number of days required to collect accounts receivable (round computation to the nearest day). 6. Operating cycle. b. From the viewpoint of a short-term creditor, comment on the quality of each company's working capital. To which company would you prefer to sell $25,000 in merchandise on a 30-day open account?Problem 14.9A Sample Worked Problem: Problem 14.98 Part A Hint: Show your work on the blank lines in Column A the left of each computation Another World Imports, Inc. Working capital: Current ratio: Quick ratio: Number of times inventory turned over during year: Average number of days required to turn over inventory: Number of times accounts receivable turned over during year: Average number of days required to collected accounts receivable: Operating cycle: Part B Comment