Principles of Financial Accounting.
Principles of Financial Accounting.
24th Edition
ISBN: 9781260158601
Author: Wild
Publisher: MCG
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Chapter 6, Problem 2AA

1.

To determine

Compute inventory turnover for each company for the most recent years shown.

1.

Expert Solution
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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 the inventory management.

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

Inventory turnover = Cost ofGoods soldAverage Inventory=$141,048($4,855+$2,132)÷2=40.37Times

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

Inventory turnover = Cost of goods soldAverage Inventory=$131,376($2,132+$2,349)÷2=58.6Times

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

Inventory turnover = Cost of goods soldAverage Inventory=$45,583($749+$268)÷2=89.6Times

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

Inventory turnover = Cost of goods soldAverage Inventory=$35,138($268+$491)÷2=92.6Times

2.

To determine

Compute days’ sales inventory for each company for three years shown.

2.

Expert Solution
Check Mark

Explanation of Solution

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=$4,855$141,048×365=12.56Days

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

Days' sales inventory = Ending inventoryCost of goods sold×365=$2,132$131,376×365=5.92Days

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

Days' sales inventory = Ending inventoryCost of goods sold×365=$749$45,583×365=6Days

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

Days' sales inventory = Ending inventoryCost of goods sold×365=$268$35,138×365=2.8Days

Calculate days’ sales inventory for the Company G’s two year prior as follows:

Days' sales inventory = Ending inventoryCost of goods sold×365=$491$28,164×365=6.36Days

3.

a)

To determine

Determine whether the inventory turnover of Company A would underperform or outperform.

3.

a)

Expert Solution
Check Mark

Explanation of Solution

Company A’s inventory turnover ratio is more than the industry average of 15 for inventory turnover for both the current year and prior year. Hence, Company A is outperformed.

b)

To determine

Determine whether the inventory turnover of Company G would underperform or outperform.

b)

Expert Solution
Check Mark

Explanation of Solution

Company G’s inventory turnover ratio is more than the industry average of 15 for inventory turnover for both the current year and prior year. Hence, Company G is outperformed.

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Chapter 6 Solutions

Principles of Financial Accounting.

Ch. 6 - Prob. 5DQCh. 6 - What is the meaning of market as it is used in...Ch. 6 - What factors contribute to (or cause) inventory...Ch. 6 - When preparing interim financial statements, what...Ch. 6 - Prob. 9DQCh. 6 - Prob. 10DQCh. 6 - Prob. 11DQCh. 6 - Prob. 12DQCh. 6 - Inventory ownership Homestead Crafts, a...Ch. 6 - Prob. 2QSCh. 6 - Computing goods available for sale Wattan Company...Ch. 6 - A company reports the following beginning...Ch. 6 - Perpetual: Inventory costing with FIFO P1 A...Ch. 6 - Perpetual: Inventory costing with FIFO P1 A...Ch. 6 - Perpetual: Inventory costing with FIFO P1 A...Ch. 6 - Perpetual: Inventory costing with FIFO P1 A...Ch. 6 - Perpetual: Inventory costing with FIFO P1 A...Ch. 6 - Perpetual: Assigning costs with FIFO Trey Monson...Ch. 6 - Perpetual: Assigning costs with FIFO P1 Trey...Ch. 6 - Perpetual: Assigning costs with FIFO P1 Trey...Ch. 6 - Perpetual: Assigning costs with FIFO P1 Trey...Ch. 6 - Perpetual: Assigning costs with FIFO P1 Trey...Ch. 6 - Perpetual: Assigning costs with FIFO P1 Trey...Ch. 6 - Perpetual: Assigning costs with FIFO P1 Trey...Ch. 6 - Perpetual: Assigning costs with FIFO P1 Trey...Ch. 6 - Prob. 18QSCh. 6 - Prob. 19QSCh. 6 - Prob. 20QSCh. 6 - Analyzing inventory Endor Company begins the year...Ch. 6 - Prob. 22QSCh. 6 - Prob. 23QSCh. 6 - Prob. 1ECh. 6 - Inventory costs Walberg Associates, antique...Ch. 6 - Perpetual: Inventory costing methods P1 Laker...Ch. 6 - Question: Laker Company reported the following...Ch. 6 - Prob. 5ECh. 6 - Prob. 6ECh. 6 - Perpetual: Inventors- costing methodsFIFO and...Ch. 6 - Question: Refer to the information in Exercise...Ch. 6 - Question: Refer to the information in Exercise 6-7...Ch. 6 - Lower of cost or market Martinez Companys ending...Ch. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Prob. 13ECh. 6 - Periodic: Cost flow assumptions Lopez Company...Ch. 6 - Periodic: Cost flow assumptions Floras Gifts...Ch. 6 - Prob. 16ECh. 6 - Estimating ending inventorgross profit method On...Ch. 6 - Alternative cost flows Warnerwoods Company uses a...Ch. 6 - Perpetual: Alternative cost flows P1 Warnerwoods...Ch. 6 - Alternative cost flows Montoure Company uses a...Ch. 6 - Perpetual: Alternative cost flows P1 Montoure...Ch. 6 - Prob. 5APCh. 6 - Analysis of inventory errors A2 Navajo Company's...Ch. 6 - Prob. 7APCh. 6 - Periodic: Income comparisons and cost flows A1 P3...Ch. 6 - Prob. 9APCh. 6 - Prob. 10APCh. 6 - Alternative cost flows Ming Company uses a...Ch. 6 - Perpetual: Alternative cost flows P1 Ming Company...Ch. 6 - Perpetual: Alternative cost flows Aloha Company...Ch. 6 - Prob. 4BPCh. 6 - Prob. 5BPCh. 6 - Analysis of inventory errors A2 Hallam Company's...Ch. 6 - Prob. 7BPCh. 6 - Periodic: Income comparisons and cost flows A1 P3...Ch. 6 - Retail inventory method The records of Macklin Co....Ch. 6 - Prob. 10BPCh. 6 - SERIAL PROBLEM Business Solutions P2 A3 This...Ch. 6 - Prob. 1AACh. 6 - Prob. 2AACh. 6 - Prob. 3AACh. 6 - ETHICS CHALLENGE Golf Challenge Corp. is a retail...Ch. 6 - COMMUNICATING IN PRACTICE You are a financial...Ch. 6 - Prob. 3BTNCh. 6 - Prob. 5BTN
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