Chapter 6, Problem 6.2EYCT

(a) (1)

To determine

Annual Report:

Annual report is a comprehensive financial report that shows all the business activities, that takes place throughout the previous financial year. Its purpose is to provide the complete information of a company’s financial activities, to its users in order to help them analyze, and take well informed decisions.

Inventory turnover ratio:

Inventory turnover ratio 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:

$\boxed{\text{Inventory turnover = }\frac{\text{Cost of goods sold}}{\text{Average inventory}}}$

To Compute: The inventory turnover of Company P, and Company C for 2015.

(2)

To determine

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.

$\boxed{\text{Days' sales in inventory}=\frac{\text{Days in accounting period}}{\text{Inventory turnover}}}$

To Compute: The days in turnover of Company P, and Company C for 2015.

(b)

To determine

To Describe: The conclusions concerning the management of the inventory can be drawn from the above data.