Botany Clothiers reported the following amounts in its 20X6 financial statements. The 20X5 figures are given for comparison.
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20X6 |
20X5 |
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Current assets: |
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|
Cash |
$ 9,000 |
$ 9,000 |
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|
Short term investments |
15,000 |
11,000 |
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|
Accounts receivable |
$80,000 |
$74,000 |
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|
Less allowance for |
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|
Uncollectibles |
(7,000) |
73,000 |
(6,000) |
68,000 |
|
Inventory |
188,000 |
189,000 |
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|
Prepaid insurance |
2,000 |
2,000 |
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|
Total current assets |
287,000 |
279,000 |
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|
Total current liabilities |
101,000 |
107,000 |
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|
Net sales |
803,000 |
732,000 |
Required
1. Compute Botany’s acid test ratio at the end of 20X6. Round to 2 decimal places. How does the acid test ratio compare with the industry average of 0.95?
2. Compare Botany’s days’ sales in receivables measure for 20X6 with the company’s credit terms of net 30 days.