Corona Company's balance sheet accounts follow:

What is Corona Company's days' sales in inventory ratio for 2011 assuming net sales and gross profit for the period were $1,236,783, $927,587 respectively?

Question

Corona Company's balance sheet accounts follow: 
 
What is Corona Company's days' sales in inventory ratio for 2011 assuming net sales and gross profit for the period were $1,236,783, $927,587 respectively?

Quizplus · Accepted Answer

Days' sales in inventory = (Average Inventory / Cost of Goods Sold) x 365

To calculate Average Inventory, we find the average of the beginning and ending inventory balances:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2

Beginning Inventory = $169,321 
Ending Inventory = $212,617 
Average Inventory = ($169,321 + $212,617) / 2 = $190,969

Cost of Goods Sold (COGS) = Net Sales - Gross Profit 
COGS = $1,236,783 - $927,587 = $309,196

Days' sales in inventory = ($190,969 / $309,196) x 365 = 112.29

Therefore, the answer is B.

Corona Company's Balance Sheet Accounts Follow