Nordstrom, Inc. operates department stores in numerous states. Suppose selected financial statement data (in millions) for 2020 are presented below. End of Year Beginning of Year Cash and cash equivalents $ 1,441 $ 137 Accounts receivable (net) 3,900 3,700 Inventory 1,700 1,700 Other current assets 619 576 Total current assets $7,660 $6,113 Total current liabilities $3,830 $3,042 For the year, net credit sales were $15,580 million, cost of goods sold was $10,200 million, and net cash provided by operating activities was $1,273 million. Compute the current ratio, accounts receivable turnover, average collection period, inventory turnover, and days in inventory at the end of the current year. (Round answers to 1 decimal place, e. g. 1.6.) Current ratio :1 Accounts receivable turnover times Average collection period days Inventory turnover times Days in inventory days

Answer and Explanation:

The computation is shown below:

1. Current ratio

Current ratio = Total Current assets ÷ total current liabilities  

= $7,660 ÷ $3,830

= 2 times

2. Account receivable turnover

= Net credit sales ÷ Average accounts receivable  

where,  

Net credit sales is $15,580 million

And, the Average accounts receivable would be  

= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2  

= ($3,700 + $3,900) ÷ 2  

= $3,800

So, the accounts receivable turnover ratio would be  

= $15,580 ÷ $3,800

= 4.1 times

3. Average collection period is

= 365 days ÷ account receivable turnover

= 365 days ÷ 4.1 times

= 89.02 days

4. Inventory turnover ratio

= Cost of goods sold ÷ Average inventory

where,  

Cost of goods sold is $10,200 million

And, the Average inventory would be  

= (Inventory, beginning of year + Inventory, end of year) ÷ 2  

= ($1,700 + $1,700) ÷ 2  

= $1,700

So, the inventory turnover ratio would be  

= $10,200 ÷ $1,700

= 6 times

5. days in inventory  is

= 365 days ÷ inventory turnover

= 365 days ÷ 6 times

= 60.83 days

We considered 365 days in a year

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