Q4 Chap 27

School: Humber College - Course: ACCT 352 - Subject: Accounting

Consider the following financial statement information for the Bulldog Icers Corp.: ItemBeginningEnding Inventory$ 15,382$16,147 Accounts receivable 12,16912,682 Accounts payable13,40814,108 Net sales$143,625 Cost of goods sold105,817 Calculate the operating and cash cycles.(Do not round intermediate calculations. Round the answers to 4 decimal places.) Operatingcycle 85.9547 Numeric Response 1.Edit Unavailable. 85.9547 correct.days Cash cycle 38.4985 Numeric Response 2.Edit Unavailable. 38.4985 correct.days Explanation The operating cycle is the inventory period plus the receivables period. The inventory turnover and inventory period are: Inventory turnover = COGS/Average inventory Inventory turnover = $105,817/{[$15,382 + $16,147]/2} Inventory turnover = 6.7124 times Inventory period = 365 days/Inventory turnover Inventory period = 365 days/6.7124 Inventory period = 54.3773 days And the receivables turnover and receivables period are:

Receivables turnover = Credit sales/Average receivables Receivables turnover = $143,625/{[$12,169 + $12,682]/2} Receivables turnover = 11.5589 times Receivables period = 365 days/Receivables turnover Receivables period = 365 days/11.5589 Receivables period = 31.5774 days So, the operating cycle is: Operating cycle = 54.3773 days + 31.5774 days Operating cycle = 85.9547 days The cash cycle is the operating cycle minus the payables period. The payables turnover and payables period are: Payables turnover = COGS/Average payables Payables turnover = $105,817/{[$13,408 + $14,108]/2} Payables turnover = 7.6913 times Payables period = 365 days/Payables turnover Payables period = 365 days/7.6913 Payables period = 47.4562 days So, the cash cycle is: Cash cycle = 85.9547 days - 47.4562 days Cash cycle = 38.4985 days The firm is receiving cash on average 38.4985 days after it pays its bills.