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Problem: Module 4 Textbook Problem 8 Learning Objectives: ...

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Accounting

Problem: Module 4 Textbook Problem 8
Learning Objectives:
4-2 Calculate ratios for assessing a company's liquidity
4-4 Calculate ratios for assessing a company's managerial effectiveness
Selected data from Adams Company follow:
Balance Sheets
As of December 31
Year 3 Year 2
Accounts receivable $ 405,000 $ 379,000
Allowance for doubtful accounts (20,250)(15,160)
Net accounts receivable $ 384,750 $ 363,840
Inventories, lower of cost or market $ 483,000 $ 437,000
Income Statement
For the Years Ended December 31
Year 3 Year 2
Net credit sales $ 2,010,000 $ 1,756,000
Net cash sales 415,000303,000
Net sales 2,425,0002,059,000
Cost of goods sold 1,602,0001,440,000
Selling, general, and administrative expenses 240,800216,000
Other expenses 40,00023,800
Total operating expenses $ 1,882,800 $ 1,679,800
Required
a. Compute the accounts receivable turnover for Year 3.
b. Compute the inventory turnover for Year 3.
c. Compute the net margin for Year 2.

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