Question

The following selected accounts were taken from the financial records of Los Olivos Distributors at December 31, 2019. All accounts have normal balances. Cash $ 31,875 Accounts receivable 47,200 Note receivable, due 2020 9,000 Merchandise inventory 35,200 Prepaid insurance 2,300 Supplies 1,360 Equipment 43,000 Accumulated depreciation, equipment 23,000 Note payable to bank, due 2020 30,000 Accounts payable 17,600 Interest payable 300 Sales 527,500 Sales discounts 2,700 Cost of goods sold 344,840 Accounts Receivable at December 31, 2018, was $53,800. Merchandise inventory at December 31, 2018, was $58,000. Based on the account balances above, calculate the following: The gross profit percentage. Working capital. The current ratio. The inventory turnover. The accounts receivable turnover. All sales were on credit.

Answer 1

Part 1. The gross profit percentage

gross profit percentage = 34.63%

Part 2. Working capital.

Working Capital = 98,675

Part 3. The current ratio.

Current Ratio =6.51

Part 4. The inventory turnover.

inventory turnover= 9.8 times

Part 5. The accounts receivable turnover.

accounts receivable turnover = 10.45 times

Step-by-step explanation:

Part 1. The gross profit percentage

gross profit percentage = Gross Profit / Sales

= 34.63%

Part 2. Working capital.

Working Capital = Current Assets - Current Liabilities

Current Assets:

Cash 31,875

Merchandise inventory 35,200

Accounts Receivables 47,200

Prepaid insurance 2,300

Total Current Assets 116,575

Current Liabilities:

Accounts payable (17,600)

Interest payable (300)

Total Current Liabilities (17,900)

Working Capital 98,675

Part 3. The current ratio.

Current Ratio= Current Assets / Current Liabilities

= 116,575 / 17,900

=6.51

Part 4. The inventory turnover.

inventory turnover= Cost of Sales/Inventory

= 344,840/35,200

= 9.8 times

Part 5. The accounts receivable turnover.

accounts receivable turnover = Net Credit Sales/ Average Accounts Receivables

= 527,500/((53,800+ 47200)/2)

= 527,500/ 50500

= 10.45 times