Question

Net Sales Cost of goods sold Average accounts receivable for the year Accounts receivable at year-end Average inventory for the year Inventory at year-end $1,095,000 657,000 44,250 18,000 226,000 158,400 Required: a. Calculate the inventory turnover for 2019. (Round your answer to 2 decimal places.) b. Calculate the number of days' sales in inventory for 2019, using year-end inventories. (Use 365 days a year. Round your answer to 1 decimal place.) c. Calculate the accounts receivable turnover for 2019. (Round your answer to 1 decimal place.) d. Calculate the number of days' sales in accounts receivable for 2019, using year-end accounts receivable. (Use 365 days a year. Round your answer to 1 decimal place.) times days a. Inventory turnover b. Number of days' sales in Inventory Accounts receivable turnover d. Number of days' sales in accounts receivable times days

Answer 1

(a) Inventory turnover ratio = Cost of the goods sold / Average inventory

Average inventory = $226000

Cost of the goods sold = $657000

Putting these values in the inventory turnover ratio formula, we get,

Inventory turnover ratio = $657000 / $226000 = 2.91 times

(b) For days' sales in inventory using year end inventory, we need to calculate the inventory turnover ratio using year end inventory:

Inventory turnover ratio = Cost of the goods sold / Year end inventory

Year end inventory = $158400

Cost of the goods sold = $65700

Putting these values in the inventory turnover ratio formula, we get,

Inventory turnover ratio = $657000 / $158400 = 4.14772

Now, we will calculate Days' sales in inventory as below:

Days' sales in inventory = 365 / Inventory turnover ratio

Inventory turnover ratio = 4.14772 times ( as computed above)

Putting these values in the Days' sales in inventory ratio formula, we get,

Days' sales in inventory ratio = 365 / 4.14772 = 88 days

(c) Accounts receivable turnover ratio = Sales / Average accounts receivables

Average accounts receivables = $44250

Sales = $1095000

Putting these values in the accounts receivable turnover ratio formula, we get,

Accounts receivables turnover ratio = $1095000 / $44250 = 24.7 times

(d) For number of days' sales in accounts receivables using year end accounts receivables, we need to calculate the accounts receivables  turnover ratio using year end accounts receivables:

Accounts receivable turnover ratio = Sales / Average accounts receivables

Year end accounts receivables = $18000

Sales = $1095000

Putting these values in the accounts receivable turnover ratio formula, we get,

Accounts receivables turnover ratio = $1095000 / $18000 = 60.833333 times

Now, we will calculate nuber of days' sales in accounts receivables as below:

Number of Days' in accounts receivables = 365 / Accounts receivable turnover ratio

Accounts receivable turnover ratio = 60.83333 times ( as computed above)

Putting these values in the Number of Days' in accounts receivables formula, we get,

Number of days in accounts receivables = 365 / 60.833333 = 6 days