Chapter 6, Problem 6.4EYCT

(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:

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

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 2016 and 2017.

(d)

To determine

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 Calculate: The percentage of total inventory of LIFO reserve.

(e)

To determine

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

Formula:

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

To Compute: The current ratio of Company A for 2017.