Problem - Integrating problem; inventories and accounts receivable
Inverness Steel Corporation is a producer of flat-rolled carbon, stainless and electrical steels, and tubular products. The company's income statement for the 2018 fiscal year reported the following information ($ in millions):
Sales$6,900 Cost of goods sold 5,900
The company's balance sheets for 2018 and 2017 included the following information ($ in millions):
2018 2017
Current assets: Accounts receivable, net $718 $618 Inventories 930 846
The statement of cash flows reported bad debt expense for 2018 of $8 million. The summary of significant accounting policies included the following notes ($ in millions):
Accounts Receivable (in part)
The allowance for uncollectible accounts was $10 and $7 at December 31, 2018 and 2017, respectively. All sales are on credit.
Inventories
Inventories are valued at the lower of cost or market. The cost of the majority of inventories is measured using the last in, first out (LIFO) method. Other inventories are measured principally at average cost and consist mostly of foreign inventories and certain raw materials. If the entire inventory had been valued on an average cost basis, inventory would have been higher by $550 and $400 at the end of 2018 and 2017, respectively.
During 2018, 2017, and 2016, liquidation of LIFO layers generated income of $8, $9, and $27, respectively.
Required:
1. Determine the amount of accounts receivable Inverness wrote off during 2018.
2. Calculate the amount of cash collected from customers during 2018.
3. Calculate what cost of goods sold would have been for 2018 if the company had used average cost to value its entire inventory.
4. Calculate the receivables turnover ratio, the inventory turnover ratio, and the gross profit ratio for 2018.