Question

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

Net sales	$	821,250
Cost of goods sold		602,250
Average accounts receivable for the year		39,100
Accounts receivable at year-end		30,400
Average inventory for the year		166,000
Inventory at year-end		157,575

Required:

a. Calculate the inventory turnover for 2016. (Round your answer to 2 decimal places.)

b. Calculate the number of days' sales in inventory for 2016, using year-end inventories. (Use 365 days a year. Round your answer to 1 decimal place.)

c. Calculate the accounts receivable turnover for 2016. (Round your answer to 1 decimal place.)

d. Calculate the number of days' sales in accounts receivable for 2016, using year-end accounts receivable. (Use 365 days a year. Round your answer to 1 decimal place.)

Answer 1

a. Inventory turnover = Cost of goods sold / Average Inventory = $602,250 / $166,000 = 3.63 times

b. Number of day's sales in inventory = [ Ending inventory / Cost of goods sold ] * days in a year = [ $157,575 / $602,250 ] * 365 = 95.5 days

c. Accounts receivable turnover = Net credit sales / Average accounts receivables = $821,250 / $39,100 = 21 times

d. Number of day's sales in accounts receivables = [ Ending accounts receivables / Net credit sales ] * days in a year = [ $30,400 / $821,250 ] * 365 = 13.5 days

Note : Here, the net sales are assumed to be the net credit sales for calculations of question c & d