Asked by Tingting Cheung on Jun 11, 2024
Verified
Calculate total current assets given the following information. Cash $10,000; supplies $3,000; average collection period 54.75 days; days' sales in inventory 91.25 days; sales $80,000; COGS $60,000.
A) $42,000
B) $40,000
C) $38,000
D) $36,000
E) $34,000
Current Assets
Assets of a company that are expected to be sold, consumed, or converted into cash within one year or within the normal operating cycle of the business.
Average Collection Period
A metric that calculates the average time taken to receive payments from customers, indicating the efficiency of a company's credit and collection policies.
Days' Sales In Inventory
A financial metric indicating the average number of days that a company holds its inventory before selling it.
- Determine the liquidity status using provided financial data.
Verified Answer
TK
Tushar KapatelJun 15, 2024
Final Answer :
B
Explanation :
Total current assets include cash, supplies, accounts receivable, and inventory. Cash is $10,000 and supplies are $3,000. To find accounts receivable, use the average collection period formula: (Average Collection Period / 365) * Sales. This gives ($80,000 * 54.75) / 365 = $12,000. To find inventory, use the days' sales in inventory formula: (Days' Sales in Inventory / 365) * COGS. This gives ($60,000 * 91.25) / 365 = $15,000. Adding these together: $10,000 + $3,000 + $12,000 + $15,000 = $40,000.
Learning Objectives
- Determine the liquidity status using provided financial data.