Financial Accounting Fundamentals
Financial Accounting Fundamentals
6th Edition
ISBN: 9781260005042
Author: Wild
Publisher: MCG
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 5, Problem 9BTN

1.

To determine

Compute the inventory turnover and days’ sales inventory for each company for the most recent years shown.

1.

Expert Solution
Check Mark

Explanation of Solution

Inventory turnover:

This is the ratio which analyzes the number of times inventory is sold during the period. This ratio gauges the efficacy of inventory management. Larger the ratio, more efficient will be the inventory management.

Calculate inventory ratio for Company A’s current year as follows:

Inventory turnover = Cost ofGoods sold           Average Inventory=$140,089($2,349+$2,111)÷2=62.8Times

Calculate inventory ratio for Company A’s one year prior as follows:

Inventory turnover = Cost ofGoods sold           Average Inventory=$112,258($2,111+$1,764)÷2=57.9Times

Calculate inventory turnover ratio for Company M’s current year as follows:

Inventory turnover = Cost ofGoods sold           Average Inventory=$33,038($2,902+$2,660)÷2=11.9Times

Calculate inventory turnover ratio for Company M’s one year prior as follows:

Inventory turnover = Cost ofGoods sold           Average Inventory=$27,078($2,660+$1,938)÷2=11.8Times

Calculate inventory ratio for Company S’s current year as follows:

Inventory turnover = Cost ofGoods sold           Average Inventory=$123,482,118($18,811,794+$17,317,504)÷2=6.84Times

Calculate inventory ratio for Company S’s one year prior as follows:

Inventory turnover = Cost ofGoods sold           Average Inventory=$128,278,800($17,317,504+$19,134,868)÷2=7.04Times

Days’ sales Inventory:

Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them.

Calculate days’ sales inventory for the Company A’s current year as follows:

Days' sales inventory = Ending inventoryCost of goods sold×365=$2,349$140,089×365=6.12Days

Calculate days’ sales inventory for the company A’s one year prior as follows:

Days' sales inventory = Ending inventoryCost of goods sold×365=$2,111$112,258×365=6.86Days

Calculate days’ sales inventory for the Company M’s current year as follows:

Days' sales inventory = Ending inventoryCost of goods sold×365=$2,902$33,038×365=32.06Days

Calculate days’ sales inventory for the Company M’s one year prior as follows:

Days' sales inventory = Ending inventoryCost of goods sold×365=$2,660$27,078×365=35.86Days

Calculate days’ sales inventory for the Company S’s current year as follows:

Days' sales inventory = Ending inventoryCost of goods sold×365=$18,811,794$123,482,118×365=55.61Days

Calculate days’ sales inventory for the Company S’s one year prior as follows:

Days' sales inventory = Ending inventoryCost of goods sold×365=$17,317,504$128,278,800×365=49.27Days

Note: For the values of Company S and Company M refer the text book (Question 2BTN).

2.

To determine

Comment and interpret your findings from parts 1.

2.

Expert Solution
Check Mark

Explanation of Solution

Interpret and Comment:

  • Company A’s inventory turnover ratio is more efficient than Company M.
  • Company A’s days’ sales inventory is fewer than company M.
  • However Company S has the lowest inventory turnover ratio and highest days’ sales inventory for both years.
  • From the above calculation it is clear that, the inventory turnover ratio of Company A and M is more efficient than Company S. This is because Company S exhibited a slightly decline in the inventory management for the current year from the prior year.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 5 Solutions

Financial Accounting Fundamentals

Ch. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - Prob. 10DQCh. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - 13. B When preparing interim financial statements,...Ch. 5 - Prob. 14DQCh. 5 - Prob. 15DQCh. 5 - Prob. 16DQCh. 5 - Prob. 17DQCh. 5 - Prob. 1QSCh. 5 - Prob. 2QSCh. 5 - Prob. 3QSCh. 5 - Prob. 4QSCh. 5 - Prob. 5QSCh. 5 - Prob. 6QSCh. 5 - Prob. 7QSCh. 5 - Prob. 8QSCh. 5 - Prob. 9QSCh. 5 - Prob. 10QSCh. 5 - Prob. 11QSCh. 5 - Prob. 12QSCh. 5 - Prob. 13QSCh. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Prob. 17QSCh. 5 - Prob. 18QSCh. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - Prob. 23QSCh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Exercise 5-10 Lower of cost or market Martinez...Ch. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 1APCh. 5 - Problem 5-1A Perpetual: Alternative cost...Ch. 5 - Prob. 3APCh. 5 - Prob. 4APCh. 5 - Prob. 5APCh. 5 - Prob. 6APCh. 5 - Prob. 7APCh. 5 - Prob. 8APCh. 5 - Prob. 9APCh. 5 - Prob. 10APCh. 5 - Prob. 1BPCh. 5 - Prob. 2BPCh. 5 - Prob. 3BPCh. 5 - Prob. 4BPCh. 5 - Prob. 5BPCh. 5 - Prob. 6BPCh. 5 - Prob. 7BPCh. 5 - Prob. 8BPCh. 5 - Prob. 9BPCh. 5 - Prob. 10BPCh. 5 - Prob. 5SPCh. 5 - Prob. 1BTNCh. 5 - Prob. 2BTNCh. 5 - Prob. 3BTNCh. 5 - Prob. 4BTNCh. 5 - Prob. 5BTNCh. 5 - ENTERPRENEURIAL DECISION BTN 5-7 Review the...Ch. 5 - Prob. 9BTN
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY
Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License