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The Kretovich Company had a quick ratio of 1.2, a current ratio of 3.0, a days...

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Finance

The Kretovich Company had a quick ratio of 1.2, a current ratioof 3.0, a days sales outstanding of 36.5 days (based on a 365-dayyear), total current assets of $795,000, and cash and marketablesecurities of $130,000. What were Kretovich's annual sales? Do notround intermediate calculations. Round your answer to the nearestdollar.

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3.9 Ratings (428 Votes)

We have been given the days sales outstanding which can be used to calculate the annual sales for the year.
However in order to use the days sales outstanding ratio we need to calculate the accounts receivable using the current ratio, quick ratio.
Current ratio Current assets/Current liabilities
3 $795,000/Current liabilities
Current liabilities $795,000/3
Current liabilities $265,000
Quick ratio (Current assets - Inventory)/Current liabilities
1.2 (795,000-Inventory)/$265,000
1.2*265000 795,000-Inventory
318000 795,000-Inventory
Inventory 795,000-318,000
Inventory $477,000
Current assets Cash+Marketable securities+Accounts receivable+Inventory
795000 130,000+Accounts receivable+477,000
Accounts receivable 795000-130000-477000
Accounts receivable $188,000
Days sales outstanding (Accounts receivable/Sales)*365
36.5 (188000/Sales)*365
36.5 68620000/Sales
Sales 68620000/36.50
Sales $1,880,000
Thus, the annual Sales for company is $1,880,000.
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