Inventory Turnover Ratio: Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows: I n v e n t o r y T u r n o v e r R a t i o = C o s t o f g o o d s s o l d A v e r a g e i n v e n t o r y Note: Average inventory is calculated with the help of following formula: A v e r a g e i n v e n t o r y = ( B e g i n n i n g i n v e n t o r y + E n d i n g i n v e n t o r y ) 2 To Calculate: The Inventory turnover ratio for years 1 and 2

Question

on a comparative balance sheet we have: inventory Prior year: 47 million Inventory current year: 49 million Accounts Payable prior year: 30 accounts payable current year: 27 * all inventory is purchased on account, and the Accounts Payable is used exclusively for inventory purchases. *make a t-chart for each account * what would be the journal entry to support the operating activity

Answer 1

Question

Chapter 6, Problem 6.7.3MBA

To determine

Concept Introduction:

Inventory Turnover Ratio:

Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:

Inventory Turnover Ratio=Cost of goods soldAverage inventory

Note: Average inventory is calculated with the help of following formula:

Average inventory=(Beginning inventory + Ending inventory)2

To Calculate:

The Inventory turnover ratio for years 1 and 2

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on a comparative balance sheet we have: inventory Prior year: 47 million Inventory current year: 49 million Accounts Payable prior year: 30 accounts payable current year: 27 * all inventory is purchased on account, and the Accounts Payable is used exclusively for inventory purchases. *make a t-chart for each account * what would be the journal entry to support the operating activity

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