A company reports the following financial information:- Inventory, December 31, 2019: $75,000- Inventory, December 31, 2020: $125,000- Net Sales for 2020: $850,000- Cost of Goods Sold for 2020: $400,000The company’s inventory turnover ratio is closest to _____.Options:- ○ 0.19 times- ○ 4.00 times- ○ 2.13 times- ○ 5.33 timesTo solve, use the formula for inventory turnover ratio:\[ \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}} \]Where:\[ \text{Average Inventory} = \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} \] Calculate the Average Inventory:\[ \text{Average Inventory} = \frac{75,000 + 125,000}{2} = 100,000 \]Substitute back into the Inventory Turnover Ratio formula:\[ \text{Inventory Turnover Ratio} = \frac{400,000}{100,000} = 4.00 \]Thus, the company’s inventory turnover ratio is closest to 4.00 times.

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Description: A company reports the following financial information:- Inventory, December 31, 2019: $75,000- Inventory, December 31, 2020: $125,000- Net Sales for 2020: $850,000- Cost of Goods Sold for 2020: $400,000The company’s inventory turnover ratio is close

Meaning of Inventory Turnover The inventory turnover ratio, also known as the…

Business

Accounting

A company reports the following financial information: Inventory, December 31, 2019 Inventory, December 31, 2020 Net Sales for 2020 Cost of Goods Sold for 2020 $ 75,000 125,000 850,000 400,000 The company's inventory turnover ratio is closest to O 0.19 times O 4.00 times O 2.13 times O 5.33 times

A company reports the following financial information: Inventory, December 31, 2019 Inventory, December 31, 2020 Net Sales for 2020 Cost of Goods Sold for 2020 $ 75,000 125,000 850,000 400,000 The company's inventory turnover ratio is closest to O 0.19 times O 4.00 times O 2.13 times O 5.33 times

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.

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Question

A company reports the following financial information:

- Inventory, December 31, 2019: $75,000
- Inventory, December 31, 2020: $125,000
- Net Sales for 2020: $850,000
- Cost of Goods Sold for 2020: $400,000

The company’s inventory turnover ratio is closest to _____.

Options:
- ○ 0.19 times
- ○ 4.00 times
- ○ 2.13 times
- ○ 5.33 times

To solve, use the formula for inventory turnover ratio:

\[ \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}} \]

Where:

\[ \text{Average Inventory} = \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} \]

Calculate the Average Inventory:

\[ \text{Average Inventory} = \frac{75,000 + 125,000}{2} = 100,000 \]

Substitute back into the Inventory Turnover Ratio formula:

\[ \text{Inventory Turnover Ratio} = \frac{400,000}{100,000} = 4.00 \]

Thus, the company’s inventory turnover ratio is closest to 4.00 times.

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