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E6-2 Determining inventory turnover (LO 6-3) On January 1, 20X1, River Company's inventory was $400,000. During 20X1, the company purchased $1,900,000 of additional inventory, and on December 31, 20X1, its inventory was $500,000. Required 1. What was the inventory turnover? 2. What was the days inventory held?

E6-2 Determining inventory turnover (LO 6-3) On January 1, 20X1, River Company's inventory was $400,000. During 20X1, the company purchased $1,900,000 of additional inventory, and on December 31, 20X1, its inventory was $500,000. Required 1. What was the inventory turnover? 2. What was the days inventory held?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Comments 1. This is an opportunity to work with Inventory Turnover and, for future reference, Days in Inventory. Inventory Turnover = Cost of Goods Sold / Average Inventory Days in Inventory = Days Inventory Held = 365 / Inventory Turnover For the average inventory, use the data that the problem gives. If you have only the beginning and ending inventory, then the average is (beginning + ending)/2. If you have beginning inventory and quarterly financial statements, that gives a total of five observations. Use the average of the five observations. 2. The Inventory Turnover measure from the financial statements is a weighted average of all product lines sold by the company. For example, in a grocery store, some inventory items turn over quickly (milk) and some inventory items turn over slowly (home cleaning utensils like brooms). The financial statements include all inventory, generally with little opportunity to subdivide. Problem Statement E6-2 Determining inventory turnover (LO 6-3) On January 1, 20X1, River Company's inventory was $400,000. During 20X1, the company purchased $1,900,000 of additional inventory, and on December 31, 20X1, its inventory was $500,000. Required 1. What was the inventory turnover? 2. What was the days inventory held?
Transcribed Image Text:Comments 1. This is an opportunity to work with Inventory Turnover and, for future reference, Days in Inventory. Inventory Turnover = Cost of Goods Sold / Average Inventory Days in Inventory = Days Inventory Held = 365 / Inventory Turnover For the average inventory, use the data that the problem gives. If you have only the beginning and ending inventory, then the average is (beginning + ending)/2. If you have beginning inventory and quarterly financial statements, that gives a total of five observations. Use the average of the five observations. 2. The Inventory Turnover measure from the financial statements is a weighted average of all product lines sold by the company. For example, in a grocery store, some inventory items turn over quickly (milk) and some inventory items turn over slowly (home cleaning utensils like brooms). The financial statements include all inventory, generally with little opportunity to subdivide. Problem Statement E6-2 Determining inventory turnover (LO 6-3) On January 1, 20X1, River Company's inventory was $400,000. During 20X1, the company purchased $1,900,000 of additional inventory, and on December 31, 20X1, its inventory was $500,000. Required 1. What was the inventory turnover? 2. What was the days inventory held?
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