Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
6th Edition
ISBN: 9780134486840
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Chapter 15, Problem 15.7SE

Requirement 1

To determine

Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

Inventory turnover=Cost of goods soldAverage inventory

Days’ sales in 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.

Formula:

Days' sales in inventory=Days in accounting periodInventory turnover

Gross profit ratio: Gross profit ratio is used to estimate the gross profit to the net sales revenue. It is represented in percentage.

Formula:

Gross profit percentage=Net salesCost of goods sold(Gross profit)Net sales×100

Days’ sales in receivables: Days’ sales in receivables is used to determine the number of days a particular company takes to collect its accounts receivables.

Formula:

Days' sales in receivables=Days in accounting periodAccounts receivables turnover 

To compute: The inventory turnover, days’ sales in inventory, and gross profit percentage

Requirement 2

To determine

To compute: The inventory turnover, days’ sales in inventory, and gross profit percentage

Requirement 3

To determine

To infer: Companies’ ability to sell inventory and collect receivables.  

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Chapter 15 Solutions

Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)

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The KEY to Understanding Financial Statements; Author: Accounting Stuff;https://www.youtube.com/watch?v=_F6a0ddbjtI;License: Standard Youtube License