The Hummel Corporation reported the following income statement and balance sheet amounts and additional information for the end of the current year. Inventory and prepaid expenses account for $28,000 of the current year's current assets.
Average inventory for the current year is $11,000.
Average net accounts receivable for the current year is $32,000.
There are 40,000 shares of common stock outstanding.
Total dividends paid during the current year were $60,000.
The market price per share of common stock is $25.
What is the company's inventory turnover for the current year?

Question

The Hummel Corporation reported the following income statement and balance sheet amounts and additional information for the end of the current year.  Inventory and prepaid expenses account for $28,000 of the current year's current assets.
Average inventory for the current year is $11,000.
Average net accounts receivable for the current year is $32,000.
There are 40,000 shares of common stock outstanding.
Total dividends paid during the current year were $60,000.
The market price per share of common stock is $25.
What is the company's inventory turnover for the current year?

Quizplus · Accepted Answer

Inventory turnover is calculated by dividing cost of goods sold by average inventory. Since the cost of goods sold is not provided, we can estimate it as total revenue minus gross profit. From the income statement, we can calculate gross profit as $475,000 - $235,000 = $240,000. Therefore, cost of goods sold is $475,000 - $240,000 = $235,000. Using the information given, we can calculate average inventory as ($11,000 + $28,000)/2 = $19,500. Therefore, inventory turnover is $235,000/$19,500 = 12.05 times.

The Hummel Corporation Reported the Following Income Statement and Balance