Chapter 6, Problem 6.4BYP

(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.

Formula:

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

Current Ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1.

Formula:

$\text{Current ratio}\text{=}\frac{\text{Current assets}}{\text{Current liabilites}}$

To define: The finished goods, work in process, and raw materials.

(b)

To determine

To explain: The reason for using FIFO method for non-domestic inventories.

(c)

To determine

To calculate: The inventory turnover ratio and days in inventory of Company A for 2014 and 2013.

(d)

To determine

To calculate: The percentage of total inventory of LIFO reserve.

(e)

To determine

To Compute: The current ratio of Company A for 2014.