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,and $927,587 respectively?
A)10.96
B)3.25
C)3.00
D)3.67
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,and $927,587 respectively?
A)10.96 
B)3.25 
C)3.00 
D)3.67 
E)4.20

Quizplus · Accepted Answer

Inventory turnover ratio = Cost of Goods Sold / Average Inventory. Using the given balance sheet accounts, we can calculate Cost of Goods Sold for 2014 as:

Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold
$357,234 + $845,689 - $391,256 = $811,667

To calculate Average Inventory for 2014:

(Beginning Inventory + Ending Inventory) / 2 
= ($357,234 + $391,256) / 2
= $374,245

Inventory turnover ratio = $811,667 / $374,245 = 2.17

To convert this ratio to the number of times inventory is sold and replaced in a year, we can take the reciprocal:

1 / 2.17 = 0.46

So inventory was sold and replaced 0.46 times in 2014. To calculate the number of days it took for Coronoa Company to sell and replace its inventory:

365 days / 0.46 inventory turnovers = 793.48 days

Rounded to the nearest whole number, we get 793 days.

Corona Company's Balance Sheet Accounts Follow