Question

Current Yr 1 Yr Ago 2 Yrs Ago At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 25, 304 89,500 114,500 8,149 191,422 $428,875 $ 29,578 $ 30,502 63,000 50,700 85,000 51,080 7,764 3,389 184,378 172,509 $ 369,720 $ 308, 100 $196,790 $ 62,483 $ 40,669 80,629 162,500 78,956 $428,875 85,036 68,090 162,500 162,500 59,701 36,841 $ 369, 720 $ 308,100 int ences The company's income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit: For Year Ended December 31 Current Yr 1 Yr Ago Sales $ 557,538 $ 439,967 Cost of goods sold $ 349,098 $ 285,979 Other operating expenses 172,837 111,312 Interest expense 9,478 10,119 Income tax expense 7,248 6,680 Total costs and expenses 529,661 414,010 Net income $ 27,877 $ 25,957 Earnings per share $ 1.72 $ 1.60 (3-a) Compute inventory turnover. (3-b) For each ratio, determine if it improved or worsened in the current year.

Answer 1

Average inventory = (Beginning Inventory + Ending inventory) /2
For Currrent Year:
Beginning inventory		85,000
Ending inventory		1,14,500
Average Inventory for Current year = (85000+114500)/2 =	99,750
For 1 Yr ago
Beginning inventory		85,000
Ending inventory		51,000
Average Inventory for 1 Yr ago = (85000+51000)/2 =		68000
Req 3-a
Inventory Turnover
Year	Cost of goods sold       /	Average Inventory =	Inventory Turnover ratio
Current	340,098    /		99,750 =		3.41	times
1 Yr ago	285,979   /		68,000 =		4.21	times
Req 3-b.
Worsened in Current year
(as inventory turnover has decreased from previous year in Current year)