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Jorge A. Baquerizo University of the People BUS 1102 – Basic Accounting

Chart 1

Beginning accounts receivable; Ending accounts receivable Net credit sales

ABC Group

123 Company

$75,000

$92,000

$125,000

$123,000

$324,000

$401,000

Chart 2 Balance Sheet Year 1 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold

Income Statement Year 1

Balance Sheet Year 2

$29,000

$10,826

$10,000

$7,435

$39,000

$18,261

$10,826

$5,980 $28,174

Income Statement Year 2

$12,281

Please complete the following tasks: 1. Complete each of the calculations listed below (A – C). A. (Use Chart 1) You are an investor looking to contribute financially to either the ABC Group or the 123 Company. Based on the information provided:

o

Compute the accounts receivable turnover ratio.

By the formula: accounts receivable turnover ratio = Net Credit Sales / Average account receivable Average account receivable: ABC Group: (125000+75000)/2 = 100000 123 Company: (123000+92000) = 107500 Thus, ABC Group turnover ratio: 324000/100000 = 3.24 123 Company turnover ratio: 401000/107500 = 3.73

o

Compute the number of days’ sales in receivables ratio for both ABC Group and 123 Company (round all answers to two decimal places).

To obtain the number of days in receivables ratio, we divide the number of days in a year by the ratio. ABC Group number of days: 365/3.24 = 112.65 123 Company number of days: 365/3.73 = 97.86

o

Interpret the outcomes, stating which company you would invest in and why.

First, we need to focus on the ratio to make the decision. The smaller the ratio, the faster the company is paid for its goods and services, so in this case, ABC Group is winning. Then, the number of days tells us how fast the company can turn its goods and services into cash, so the smaller the

number the better. In other words, 123 Company wins both times and is more attractive for investing.

B. (Use Chart 2) Compute the inventory turnover ratio. o

Interpret the outcomes

Year 1: ($29,000 + $10,826)/2 = $19,913 Year 2: ($10,826 + $5,980)/2 = $8,403 Year 1: ($29,000 + $10,826)/2 = $19,913 Year 2: ($10,826 + $5,980)/2 = $8,403 By the formula: Average inventory (Inventoryo + Inventoryf)/2: Year 1: (29000 + 10826)/2 = 19913 Year 2: (10826 + 5980)/2 = 8403 Thus, Inventory turnover ratio, year 1: 28174 / 19913 = 1.41 Inventory turnover ratio, year 2: 12281 / 8403 = 1.46

C. (Use Chart 2) Compute the number of days’ sales in inventory ratio. days’ sales in inventory ratio Year 1: 365 / 1.41 = 259 days’ sales in inventory ratio Year 2: 365 / 1.46 = 250

o

Interpret the outcomes

123 Company moves its inventory faster is better at making money out of it. It is noticeable that it is more active on the market and results in a more attractive investment.

2. Interpret the outcomes for each of the calculations performed using chart 1 and chart 2 (A – C). 3. Did you encounter issues completing any Unit 5 assignments? Please explain. No issues! The math is straight-forward and lucky me I like math. 4. You are halfway through the course. What are your thoughts about the course and the material that has been covered at this point? I think the course is very practical. One of the benefits of working and studying at the same time is that I get to experience what I learn on my daily work routine which helps me a lot to understand what is truly useful!...