Park Avenue Tire Company has been operating in

Winnipeg for #239

Park Avenue Tire Company has been operating in Winnipeg for more than 30 years and has a
very loyal customer base. The company sells and installs tires and the owners pride themselves
on the excellent business relationships they have developed with both their customers and
suppliers. The company often sells tires on credit, allowing customers to pay their balances
within 30 days. Collection of accounts receivable has never been a problem, with most people
paying their balances within 60 days.Park Avenue purchases tires from most of the large
national brands and, due to the nature of the business, generally maintains a fairly large
inventory. It is essential that the company have the necessary tires on hand to meet customer
needs due to increased competition from large retailers such as Canadian Tire and Wal-
Mart.The company has always had sufficient cash to pay its suppliers immediately and take
advantage of cash discounts. However, this month, for the first time ever, Park Avenue does not
have sufficient cash in the bank to meet its supplier payments. Chris Park, son of the original
owner, Ernest Park, is currently operating the business and is very concerned about the
company's inability to maintain what he feels are adequate levels of cash.Your firm has been
the accountants for Park Avenue Tire Company for the past 20 years. Chris has approached the
firm expressing his concerns and asking for advice on how to solve the cash How problems. As
part of your analysis, you review the company's financial statements for the past three years.
Excerpts from the financial statements are presented below.During 2012, credit sales and cost
of goods sold were $160,000 and $97,000, respectively. The 2011 and 2010 credit sales were
$175,000 and $177,000, and the cost of goods sold for the same periods were $93,000 and
$95,000. The accounts receivable and inventory balances at the end of 2009 were $8,000 and
$99,000, respectively.Required:Prepare a report for Chris Park detailing options that he can
take to alleviate the company's cash problems. Remember that you are to present options, not
recommendations. As a basis for the report, you should calculate and comment on the following
ratios:a. Current ratiob. Quick ratioc. Receivables turnover ratio and average collection periodd.
Inventory turnover ratio and days in inventoryView Solution:
Park Avenue Tire Company has been operating in Winnipeg for

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