Corona Company's balance sheet accounts follow: What is Corona Company's inventory turnover ratio for 2014, assuming net sales and gross profit for the period were $1,236,783, $927,587 respectively?
A) 10.96
B) 3.25
C) 3.00
D) 3.65
E) 4.20

Question

Corona Company's balance sheet accounts follow:  What is Corona Company's inventory turnover ratio for 2014, assuming net sales and gross profit for the period were $1,236,783, $927,587 respectively?
A) 10.96 
B) 3.25 
C) 3.00 
D) 3.65 
E) 4.20

Quizplus · Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventory

First, we need to calculate the cost of goods sold for 2014:

Beginning inventory = $130,587
Purchases = $579,426
Ending inventory = $141,240

Cost of goods sold = Beginning inventory + Purchases − Ending inventory = $568,773

Next, we need to calculate the average inventory for the period:

Average inventory = (Beginning inventory + Ending inventory) / 2 = ($130,587 + $141,240) / 2 = $135,914

Finally, we can calculate the inventory turnover ratio:

Inventory turnover ratio = Cost of goods sold / Average inventory = $568,773 / $135,914 = 4.18 (rounded to two decimal places)

Therefore, the closest answer choice is D) 3.65.

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