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Expert-verified Found in: Page 841 ### Horngren'S Financial And Managerial Accounting

Book edition 6th
Author(s) Tracie L. Miller-Nobles, Brenda L. Mattison
Pages 992 pages
ISBN 9780134486833

# The financial statements of Valerie’s Natural Foods include the following items: Compute the following ratios for the current year:Current ratioCash ratioAcid-test ratioInventory turnoverDay’s sales in inventoryDay’s sales in receivablesGross profit percentage

1. CR= 1.40:1

2. Cash Ratio = 0.26:1

3. Acid Test Ratio= 0.70:1

4. Inventory Turnover Ratio= 4.10 times

5. Days sales in Inventory= 89 days

6. Days sales in receivables= 58 days

7. Gross Profit % =34.45%

See the step by step solution

## Step 1: Current Ratio

Current Ratio = Current Assets/Current Liabilities

= $95,000 Acid Test Ratio =$95,000 / $136,000 Acid Test Ratio =0.70:1 ## Step 4: Inventory Turnover Ratio Inventory Turnover Ratio= Cost of Goods Sold/ Average Inventory. Average Inventory = Beginning Inventory + Ending Inventory / 2 =$78,000+ $74,000 /2 Average Inventory=$76,000

Inventory turnover ratio = $312,000/$76,000

= 4.10 times

## Step 5: Days Sales in Inventory

Days Sales in Inventory = No of Days in Year/ Inventory Turnover Ratio

=365 / 4.10

= 89 days

## Step 6: Days Sales in Receivable

Days Sales in Receivable = (Average Accounts Receivable / Total Credit Sales) x 365

Average Accounts Received = $60,000 +$92,000 / 2

= $76,000 Days Sales In Received =$76,000/ $476,000 x365 Days Sales In Received = 58 days Gross Profit Percentage = (Gross Profit / Net Sales) x 100 Gross Profit = Sales- Cost of Goods Sold = ($476.000 - $312,000)/$476,000

= 34.45 %

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