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Horngren'S Financial And Managerial Accounting
Found in: Page 458

Short Answer

Lovett Company reported the following selected items at March 31, 2018 (last year’s—2017—amounts also given as needed):

Accounts Payable $ 128,000 Accounts Receivable, net:

Cash 104,000 March 31, 2018 $ 108,000

Merchandise Inventory: March 31, 2017 68,000

March 31, 2018 116,000 Cost of Goods Sold 460,000

March 31, 2017 80,000 Short-term Investments 56,000

Net Credit Sales Revenue 1,168,000 Other Current Assets 48,000

Long-term Assets 168,000 Other Current Liabilities 72,000

Long-term Liabilities 52,000

14. Compute Lovett’s (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days’ sales in receivables as of

March 31, 2018.

a). The acid-test ratio of the company is 1.34:1

b). The accounts receivable turnover ratio is 13.3 times.

c). The days’ sales receivable is 27.44 days.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Ratios

Ratios are a financial tool used to calculate the relationship among different line items of the financial statements.

Step 2: Calculation of acid test ratio

Step 3:Calculation of account receivable turnover ratio

Working note:

Calculation of average accounts receivable

Step 4:Calculation of day sales receivables

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