Chapter 13: Q7DQ (page 614)
What does the number of days’ sales uncollected indicate.
Number of days sales uncollected indicate the time period for which sales remains uncollected.
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The following information is available for Morgan Company and Parker Company, similar firms operating in the same industry. Write a half-page report comparing Morgan and Parker using the available information. Your discussion should include their ability to meet current obligations and to use current assets efficiently.
| Morgan | Parker | |||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |
| Current ratio | 1.7 | 1.6 | 2.1 | 3.2 | 2.7 | 1.9 |
| Acid test ratio | 1.0 | 1.1 | 1.2 | 2.8 | 2.5 | 1.6 |
| Accounts receivable turnover | 30.5 | 25.2 | 29.2 | 16.4 | 15.2 | 16.0 |
| Merchandise inventory turnover | 24.2 | 21.9 | 17.1 | 14.5 | 13.0 | 12.6 |
| Working capital | \(70,000 | \)58,000 | \(52,000 | \)131,000 | \(103,000 | \)78,000 |
Refer to Apple’s financial statements in Appendix A. Compute its profit margin for the years ended September 26, 2015, and September 27, 2014.
What does the number of days’ sales uncollected indicate.
Selected comparative financial statements of Bluegrass Corporation follows:
BLUEGRASS CORPORATION
Comparative Balance Sheets
December 31, 2017, 2016, and 2015
2017 2016 2015
Assets
Current assets . . . . . . . . . . . . . . . . \( 54,860 \) 32,660 \( 36,300
Long-term investments . . . . . . . . 0 1,700 10,600
Plant assets, net . . . . . . . . . . . . . . 112,810 113,660 79,000
Total assets . . . . . . . . . . . . . . . . . . \)167,670 \(148,020 \)125,900
Liabilities and Equity
Current liabilities . . . . . . . . . . . . . . \( 22,370 \) 19,180 \( 16,500
Common stock . . . . . . . . . . . . . . . 46,500 46,500 37,000
Other paid-in capital . . . . . . . . . . . 13,850 13,850 11,300
Retained earnings . . . . . . . . . . . . 84,950 68,490 61,100
Total liabilities and equity . . . . . . . \)167,670 \(148,020 \)125,900
BLUEGRASS CORPORATION
Comparative Income Statements
For Years Ended December 31, 2017, 2016, and 2015
2017 2016 2015
Sales . . . . . . . . . . . . . . . . . . . . . . \(198,800 \)166,000 \(143,800
Cost of goods sold . . . . . . . . . . . 108,890 86,175 66,200
Gross profit . . . . . . . . . . . . . . . . . 89,910 79,825 77,600
Selling expenses . . . . . . . . . . . . . 22,680 19,790 18,000
Administrative expenses . . . . . . 16,760 14,610 15,700
Total expenses . . . . . . . . . . . . . . 39,440 34,400 33,700
Income before taxes . . . . . . . . . . 50,470 45,425 43,900
Income taxes . . . . . . . . . . . . . . . . 6,050 5,910 5,300
Net income . . . . . . . . . . . . . . . . . \) 44,420 \( 39,515 \) 38,600
Required
Summary information from the financial statements of two companies competing in the same industry follows.
Barco Kyan Barco Kyan
Company CompanyCompanyCompany
Data from the current year-end balance sheets Data from the current year’s income statement Assets Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(770,000 \)880,200
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \( 19,500 \) 34,000 Cost of goods sold . . . . . . . . . . . . . . . . . . 585,100 632,500
Accounts receivable, net . . . . . . . . . . . . . 37,400 57,400 Interest expense . . . . . . . . . . . . . . . . . . . . 7,900 13,000
Current notes receivable (trade) . . . . . . . 9,100 7,200 Income tax expense . . . . . . . . . . . . . . . . . 14,800 24,300
Merchandise inventory . . . . . . . . . . . . . . . 84,440 132,500 Net income . . . . . . . . . . . . . . . . . . . . . . . . 162,200 210,400
Prepaid expenses . . . . . . . . . . . . . . . . . . . 5,000 6,950 Basic earnings per share . . . . . . . . . . . . . 4.51 5.11
Plant assets, net . . . . . . . . . . . . . . . . . . . . 290,000 304,400 Cash dividends per share . . . . . . . . . . . . . 3.81 3.93
Total assets . . . . . . . . . . . . . . . . . . . . . . . . \(445,440 \)542,450
Beginning-of-year balance sheet data
Liabilities and Equity Accounts receivable, net . . . . . . . . . . . . . \( 29,800 \) 54,200
Current liabilities . . . . . . . . . . . . . . . . . . . . \( 61,340 \) 93,300 Current notes receivable (trade) . . . . . . . 0 0
Long-term notes payable . . . . . . . . . . . . . 80,800 101,000 Merchandise inventory . . . . . . . . . . . . . . . 55,600 107,400
Common stock, \(5 par value . . . . . . . . . . 180,000 206,000 Total assets . . . . . . . . . . . . . . . . . . . . . . . . 398,000 382,500
Retained earnings . . . . . . . . . . . . . . . . . . 123,300 142,150 Common stock, \)5 par value.......... 180,000 206,000
Total liabilities and equity . . . . . . . . . . . . . \(445,440 \)542,450 Retained earnings . . . . . . . . . . . . . . . . . . . 98,300 93,600
Required
1. For both companies compute the
(a) current ratio,
(b) acid-test ratio,
(c) accounts (including notes) receivable turnover,
(d) inventory turnover,
(e) days’ sales in inventory, and
(f) days’ sales uncollected.
Identify the company you consider to be the better short-term credit risk and explain why. Round to one decimal place.
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