Question

Calculate activity measures The following information was available for the year ended December 31, 2016:

Net sales	$365,000
Cost of goods sold	292,000
Average accounts receivable for the year	14,600
Accounts receivable at year-end	16,000
Average inventory for the year	73,000
Inventory at year-end	78,400

Required:

Calculate the inventory turnover for 2016.

Calculate the number of days’ sales in inventory for 2016, using year-end inventories.

Calculate the accounts receivable turnover for 2016.

Calculate the number of days’ sales in accounts receivable for 2016, using year-end accounts receivable.

Answer 1

Solution 1:

Inventory Turnover = Cost of goods sold / Average inventroy

= $292,000 / 73000 = 4 times

Solution 2:

Nos of days sales in inventory = Inventory at year end * Nos of days in year / COGS = $78,400*365/$292,000

= 98 days

Solution 3:

Accounts receivables turnover = Net Sales / Average accounts receivables = $365,000 / $14,600 = 25 times

Solution 4:

Nos of days sales in accounts receivables = Accounts receivables at year end * 365/ Net Sales

= 16000*365/365000

= 16 days