Excerpts from Sydner Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900.The inventory turnover for Year 2 is closest to:
A) 3.75
B) 1.20
C) 4.09
D) 0.83

Question

Excerpts from Sydner Corporation's most recent balance sheet appear below:  Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900.The inventory turnover for Year 2 is closest to:
A) 3.75 
B) 1.20 
C) 4.09 
D) 0.83

Quizplus · Accepted Answer

Inventory turnover = Cost of Goods Sold / Average Inventory

We are given the cost of goods sold for Year 2 as $900. To calculate the average inventory, we need the beginning and ending inventory balances.

Beginning inventory = Ending inventory from Year 1 = $1,200 
Ending inventory = Beginning inventory - Cost of goods sold + Sales = $1,200 - $900 + $1,390 = $1,690

Average inventory = (Beginning inventory + Ending inventory) / 2 = ($1,200 + $1,690) / 2 = $1,445

Inventory turnover = Cost of Goods Sold / Average Inventory = $900 / $1,445 ≈ 4.09

Therefore, the inventory turnover for Year 2 is closest to 4.09, which is option C.

Excerpts from Sydner Corporation's Most Recent Balance Sheet Appear Below