Inventory turnover ratio : This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula: Inventory turnover = Cost of goods sold Average inventory Days in inventory: Days in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. Days' sales in inventory = Days in accounting period Inventory turnover LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting. To Compute: The inventory turnover and days in inventory of Company D for 2017.

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Answer 1

Question

Chapter 6, Problem 6.13E

(a)

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula:

Inventory turnover = Cost of goods soldAverage inventory

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

Days' sales in inventory=Days in accounting periodInventory turnover

LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting.

To Compute: The inventory turnover and days in inventory of Company D for 2017.

(b)

To determine

To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

(c)

To determine

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

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Answer 2

Question

Chapter 6, Problem 6.13E

(a)

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula:

Inventory turnover = Cost of goods soldAverage inventory

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

Days' sales in inventory=Days in accounting periodInventory turnover

LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting.

To Compute: The inventory turnover and days in inventory of Company D for 2017.

(b)

To determine

To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

(c)

To determine

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

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Answer 3

Question

Chapter 6, Problem 6.13E

(a)

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula:

Inventory turnover = Cost of goods soldAverage inventory

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

Days' sales in inventory=Days in accounting periodInventory turnover

LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting.

To Compute: The inventory turnover and days in inventory of Company D for 2017.

(b)

To determine

To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

(c)

To determine

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

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Answer 4

Question

Chapter 6, Problem 6.13E

(a)

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula:

Inventory turnover = Cost of goods soldAverage inventory

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

Days' sales in inventory=Days in accounting periodInventory turnover

LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting.

To Compute: The inventory turnover and days in inventory of Company D for 2017.

(b)

To determine

To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

(c)

To determine

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

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Answer 5

Chapter 6, Problem 6.13E

(a)

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula:

Inventory turnover = Cost of goods soldAverage inventory

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

Days' sales in inventory=Days in accounting periodInventory turnover

LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting.

To Compute: The inventory turnover and days in inventory of Company D for 2017.

(b)

To determine

To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

(c)

To determine

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

Answer 6

Chapter 6, Problem 6.13E

(a)

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula:

Inventory turnover = Cost of goods soldAverage inventory

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

Days' sales in inventory=Days in accounting periodInventory turnover

LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting.

To Compute: The inventory turnover and days in inventory of Company D for 2017.

Answer 7

Chapter 6, Problem 6.13E

(a)

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period. It is calculated by using the following formula:

Inventory turnover = Cost of goods soldAverage inventory

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

Days' sales in inventory=Days in accounting periodInventory turnover

LIFO Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its inventory valuation but uses LIFO method for financial reporting.

To Compute: The inventory turnover and days in inventory of Company D for 2017.

Answer 8

(b)

To determine

To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

Answer 9

(b)

To determine

To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

Answer 10

(c)

To determine

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

Answer 11

(c)

To determine

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 6 - The key to successful business operations is...Ch. 6 - Prob. 2Q Ch. 6 - What is just-in-time inventory management? What...Ch. 6 - Prob. 4Q Ch. 6 - Prob. 5Q Ch. 6 - Prob. 6Q Ch. 6 - Prob. 7Q Ch. 6 - Prob. 8Q Ch. 6 - What is the major advantage and major disadvantage...Ch. 6 - The selection of an inventory cost flow method is...

Solution Summary: The author explains the inventory turnover ratio, which is used to evaluate how many times a company sells or uses its inventory.

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To Compute: The current ratio and adjust the LIFO reserve using the 2017 data.

To Comment: the effect of ignoring the LIFO reserve affects the evaluation of Company D’s liquidity.

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