The 2015 and 2016 balance sheets for Shadow Industries showed Cash of $7,600 and $9,100 respectively, Accounts Receivable of $16,000 and $18,000, respectively, Inventory of $11,000 and $8,000, respectively, and Accounts Payable of $5,300 and $7,300, respectively. Its 2016 Income Statement showed Net Sales of $103,000, Cost of Goods Sold of $65,000, and Net Income of $30,000. The cash conversion cycle for 2016 was: (Assume all Sales are credit sales. Round any intermediary calculations to two decimal places and your final answer to the nearest day.)
A)149 days.
B)28 days.
C)42 days.
D)78 days.

Question

Quizplus · Accepted Answer

The cash conversion cycle (CCC) is calculated as Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO). - DIO = (Average Inventory / Cost of Goods Sold) * 365 = (($11,000 + $8,000) / 2) / $65,000 * 365 = $9,500 / $65,000 * 365 ≈ 53.42 days- DSO = (Average Accounts Receivable / Net Sales) * 365 = (($16,000 + $18,000) / 2) / $103,000 * 365 = $17,000 / $103,000 * 365 ≈ 60.19 days- DPO = (Average Accounts Payable / Cost of Goods Sold) * 365 = (($5,300 + $7,300) / 2) / $65,000 * 365 = $6,300 / $65,000 * 365 ≈ 35.35 daysCCC = DIO + DSO - DPO ≈ 53.42 + 60.19 - 35.35 ≈ 78.26 days, rounded to the nearest day is 78 days.

The 2015 and 2016 Balance Sheets for Shadow Industries Showed