B Jones Corporation has issued common stock only The company

B. Jones Corporation has issued common stock only. The company has been successful and has a gross profit rate of 20%. The information shown below was taken from the company\'s financial statements. Beginning inventory $ 482,000 Purchases 4,346,000 Ending inventory ? Average accounts receivable 700,000 Average common stockholders\' equity 3,100,000 Sales revenue (all on credit) 5,600,000 Net income 341,000 Compute the following:

Solution

1. Accounts receivable turnover = Net sales / Average Acc recievable

                                                   = 5600000 $ / 700000 $

                                                   = 8 Times

2. Average collection period = No of days in year / Acc Recievable turnover ratio

                                             = 365 / 8

                                            = 45.6 Days

3. Ending Inventory

   Gross Profit = 20 %

   Sales = 5600000 $

    Gross profit = 5600000 $ * 20%

                       = 1120000 $

   Closing inventory = Opening Inv + Purchases + Gross profit - Sales

                                 = 482000 + 4346000 + 1120000 + 5600000

                                 = 348000 $

4. Inventory turnover Ratio = Net sales/ Average Inventory

                                          = 5600000 / 415000

                                         =13.5 Times

Average Inv = Opening + Closing / 2

                     = 482000+348000 /2

                    = 415000 $

5. Average days in inventory = 365/ 13.5

                                             = 27 days

6. Return on common stockholders\' equity = Net income / average common stock equity

                                                                 = 341000 / 3100000

                                                                 = 11 %

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