Concept explainers
(a)
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:
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.
Formula:
LIFO (Last-in-first-out) Reserve: It is a contra inventory account that shows the difference between the inventory cost under FIFO (First-in-first-out) and inventory cost under LIFO. This account is recorded when a company uses FIFO method for its
To compute: The inventory turnover and days in inventory of Company N.
(b)
To compute: The
(c)
To compute: The current ratio after adjusting the LIFO reserve.
(d)
To comment: On the difference between the current ratio based on inventory using LIFO and the current ratio after adjusting for the LIFO reserve.
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Financial Accounting
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