Balance Sheet:
The balance sheet concludes the assets invested in by the company as well as reports the liabilities and equity taken up thus showing the economic or financial status of the company.
Inventory:
Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.
End inventory:
Period end inventory refers to the units remaining at the end of the fiscal year which are yet to be sold.
Current Assets:
It comprises of all the assets which gets converted into cash in less than a year. Example: inventory, other current assets, etcetera.
Inventory Turnover Ratio:
It depicts the fraction of inventory sold or used by the company within a fiscal year. It states a ratio which shows the number of times goods were sold during an accounting period which thereby states the productivity or the efficiency level of the company regarding the inventory which apparently is the biggest asset for the company.
Days’ sales in inventory:
It indicates the days taken up by the company to convert the stock items into actual sales.
1.
Amount of inventories as a part of current assets on September 26, 2015 and on September 27, 2014.
Explanation of Solution
- The ending inventory as a part of the current assets as on September 26, 2015 accounts for $2,349.
- And the ending inventory as a part of the current assets as on September 27, 2014 accounts for $2,111.
2.
To compute: Inventories as a percentage of total assets on September 26, 2015 and.
September 27, 2014.
2.
Explanation of Solution
Given info,
2015
The ending inventory is $2,349.
Total assets account for $290,479.
2014
The ending inventory is $2,111.
Total assets accounts for $231,839.
Inventory as a percentage of total assets as on September 26, 2015:
Formula to calculate inventory as a percentage of total assets is,
Substitute $2,349 for inventory and $290,479 for total assets.
Therefore, the inventory as a percentage of total assets as on September 26, 2015 is 0.81%.
Inventory as a percentage of total assets as on September 27, 2014:
Formula to calculate inventory as a percentage of total assets is,
Substitute $2,111 for inventory and $231,839 for total assets.
Therefore, the inventory as a percentage of total assets as on September 27, 2014 is 0.91%.
3.
To explain: Relative size of inventories compared to its other types of assets.
3.
Explanation of Solution
- The inventory in both the years accounts for very low amount as compared to other assets of the company.
- Long-term marketable securities comparatively is very high than the inventory.
- Whereas,
goodwill and other assets are somewhere amounts near to inventories yet have a higher value in the balance sheet.
4.
The accounting method used to compute inventory amounts.
4.
Explanation of Solution
The company accounts inventory as per the lower of cost or market (LCM) approach. The notes to statement also mention that the method of
5.
To compute: Inventory turnover and days’ sales in inventory for the year ended September 26, 2015.
5.
Explanation of Solution
Given info,
Cost of sales is $140,089.
The ending inventory is $2,349.
A’s inventory turnover:
Computation of the inventory turnover for 2015:
Formula to calculate the inventory turnover is,
Substitute $140,089 for cost of sales (given) and $2,230 for average inventory (working notes) in the above formula.
Thus, the inventory turnover results to 62.8 times.
Working Notes:
Calculation of the average inventory,
A’s days’ sales in inventory:
Formula to calculate the days’ sales in inventory is,
Substitute $2,349 for ending inventory (given) and $140,089 for cost of sales (given) in the above formula.
Thus, the days’ sales in inventory accounts for 6.12 days.
6.
Information for the year ended September 26, 2015.
6.
Explanation of Solution
Given info,
2016
The ending inventory is $2,132.
The total assets are $321,686.
The cost of sales is $131,376.
2017
The ending inventory is $4,855.
The total assets are $375,319
The cost of sales is $141,048.
Year 2016
1.
Ending inventory
Ending inventory as on September 24, 2016 amounts to $2,132.
2.
Inventory as a percentage of total assets as on September 24, 2016:
Formula to calculate inventory as a percentage of total assets is,
Substitute $2,132 for inventory and $321,686 for total assets.
Therefore, the inventory as a percentage of total assets as on September 24, 2016 is 0.66%.
3.
Inventory relative size compared to other assets
- The inventory in both the years accounts for very low amount as compared to other assets of the company.
- Long-term marketable securities comparatively is very high than the inventory.
- Whereas goodwill and other assets are somewhere amounts near to inventories yet have a higher value in the balance sheet.
4.
Method of inventory valuation:
- The company accounts inventory as per the lower of cost or market (LCM) approach.
- The notes to statement also mention that the method of inventory valuation used is first in, first out method. The inventory mainly consists of the finished goods.
5.
A’s inventory turnover:
Computation of the inventory turnover for 2016:
Formula to calculate the inventory turnover is,
Substitute $131,376 for cost of sales (given) and $2,240.5 for average inventory (working notes) in the above formula.
Thus, the inventory turnover results to 58.64 times.
Working notes:
Calculation of the average inventory,
A’s days’ sales in inventory:
Formula to calculate the days’ sales in inventory is,
Substitute $2,132 for ending inventory (given) and $131,376 for cost of sales (given) in the above formula.
Thus, the days’ sales in inventory accounts for 5.92 days.
Year 2017
1.
Ending inventory
Ending inventory as on September 30, 2017 amounts to $4,855.
2.
Inventory as a percentage of total assets as on September 30, 2017:
Formula to calculate inventory as a percentage of total assets is,
Substitute $4,885 for inventory and $375,319 for total assets.
Therefore, the inventory as a percentage of total assets as on September 30, 2017 is 1.3%.
3.
Inventory relative size compared to other assets
The inventory in both the years accounts for low amount as compared to other assets of the company but has increased comparatively and is more than the intangible assets. Whereas goodwill and other assets are somewhere amounts near to inventories yet have a higher value in the balance sheet.
4.
Method of inventory valuation:
The company accounts inventory as per the lower of cost or market (LCM) approach. The notes to statement also mention that the method of inventory valuation used is first in, first out method. The inventory mainly consists of the finished goods.
5.
A’s inventory turnover:
Computation of the inventory turnover for 2017:
Formula to calculate the inventory turnover is,
Substitute $141,048 for cost of sales (given) and $3,493.5 for average inventory (working notes) in the above formula.
Thus, the inventory turnover results to 40.3 times.
Working Notes:
1. Calculation of the average inventory:
A’s days’ sales in inventory:
Computation of the days’ sales in inventory for 2017:
Formula to calculate the days’ sales in inventory is,
Substitute $4,855 for ending inventory (given) and $141,048 for cost of sales (given) in the above formula.
Thus, the days’ sales in inventory accounts for 12.56 days.
Observation:
- Inventory as a percentage of total assets has fallen over the years though in the year 2017 it has shown a rise trend.
- In the year 2017 the company has been most efficient as per the inventory turnover when compared to the previous years.
- Whereas in case of days’ sales in inventory the results suggests that the company in the year 2017 held inventory in store for a bit longer time whereas it is least in the year 2016.
Want to see more full solutions like this?
Chapter 5 Solutions
Gen Combo Ll Financial Accounting Fundamentals; Connect Access Card
- Refer to Samsung’s financial statements. Compute its cost of goods available for sale for the year ended December 31, 2017.arrow_forwardPlease refer to the picture below for the information. Please show the complete solution and kinldy include label. Thank you so much. Question 1: How much is the amount of "Cost of Goods Sold" to be reported in the 2015 Statement of comprehensive income assuming the company’s policy is to charge loss on inventory write-down to COST OF GOODS SOLD and charge loss on inventory write-down to OTHER EXPENSE, respectively. Question 2: How much is the amount of "Cost of Goods Sold" to be reported in the 2016 Statement of comprehensive income?arrow_forwardIt is discovered in 2018 that ending inventory in 2016 was understated. What is the effect of the understatementon the following: 2016: Cost of goods soldNet incomeEnding retained earnings2017: Net purchasesCost of goods soldNet incomeEnding retained earningsarrow_forward
- ABC Co. a manufacturer provided the ff information for the year ended December 31, 2017. What is the correct amount of inventory?arrow_forwardThe management of Gresa Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the results of operations for 2017 if either the FIFO or the LIFO method had been used. For 2017, the accounting records show these data: Inventories Purchases and Sales Beginning (7,000 units) $14,000 Total net sales (236,000 units) $1,038,400 Ending (21,000 units) Total cost of goods purchased (250,000 units) 596,500 Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 1 65,000 $2.20 $143,000 2 55,000 2.30 126,500 3 55,000 2.40 132,000 4 75,000 2.60 195,000 250,000 $596,500 Operating expenses were $150,000, and the company’s income tax rate is 30%. Prepare comparative condensed income statements for 2017 under FIFO and…arrow_forwardManufacturers and merchandisers can apply just-in-time (JIT) to their inventory management. Apple wants to know the impact of a JIT inventory system on operating cash flows. Review Apple’s statement of cash flows in Appendix A to answer the following. Required 1. Identify the impact on operating cash flows (increase or decrease) for changes in inventory levels (increase or decrease) for each of the fiscal years ended September 30, 2017, and September 24, 2016. 2. What impact (increase or decrease) would a JIT inventory system have on Apple’s (a) inventory and (b) operating cash flows?arrow_forward
- Need a,b,c,d Suppose that a firm has an ending inventory of $121,000 as of December 31, 2012. The accounting information for 2013 has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Question S A. What is the monthly inventory turnover ratio for each of the twelve months for 2013? Round your answers to two decimal places. B. What is the total cost of goods sold for the year? Round your answer to the nearest dollar. C. What is the average monthly inventory? Round your answer to the nearest cent. D. What is the annual inventory turnover ratio? Do not round intermediate calculations. Round your answer to two decimal places.arrow_forwardIn 2016, the Barton and Barton Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2015, B & B’s inventories were $32 million (FIFO). B & B’s records indicated that the inventories would have totaled $23.8 million at December 31, 2015, if determined on an average cost basis. Ignoring income taxes, what journal entry will B & B use to record the adjustment in 2016? Briefly describe other steps B & B should take to report the change.arrow_forwardIn preparing financial statements for the year ended 31 March 2015, the inventory count was carried out on 4 April 2015. The value of inventory counted was GHS36m. Between 31 March and 4 April goods with a cost of GHS2.7m were received into inventory and sales of GHS7.8m were made at a mark-up on cost of 30%. At what amount should inventory be stated in the statement of financial position as at 31 March 2015?arrow_forward
- In preparing financial statements for the year ended 31 March 2015, the inventory count was carried out on 4 April 2015. The value of inventory counted was GHS36m. Between 31 March and 4 April goods with a cost of GHS2.7m were received into inventory and sales of GHS7.8m were made at a mark-up on cost of 30%. At what amount should inventory be stated in the statement of financial position as at 31 March 2015? A. GHS32.7m B. GHS39.3m C. GHS38.76m D. GHS33.24marrow_forwardMaking Business Decisions: Analyzing Apple’s Inventory Turnover Ratio You are considering an investment in the common stock of Apple Inc. The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 (in millions of dollars): Cost of sales for the year ended: September 26, 2015 $140,089 September 27, 2014 112,258 Inventories: September 26, 2015 2,349 September 27, 2014 2,111 September 29, 2013 1,764 The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 for Hewlett-Packard Company (in millions of dollars): Cost of sales for the year ended: October 31, 2015 $53,081 October 31, 2014 56,469 Inventory: October 31, 2015 6,485 October 31, 2014 6,415 October 31, 2013 6,046 Use 360 days a year. Required: 1. Calculate the inventory turnover ratios for Apple Inc. and Hewlett-Packard Company for the years ending September 26, 2015 and October…arrow_forwardMaking Business Decisions: Analyzing Apple’s Inventory Turnover Ratio You are considering an investment in the common stock of Apple Inc. The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 (in millions of dollars): Cost of sales for the year ended: September 26, 2015 $140,089 September 27, 2014 112,258 Inventories: September 26, 2015 2,349 September 27, 2014 2,111 September 29, 2013 1,764 The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 for Hewlett-Packard Company (in millions of dollars): Cost of sales for the year ended: October 31, 2015 $53,081 October 31, 2014 56,469 Inventory: October 31, 2015 6,485 October 31, 2014 6,415 October 31, 2013 6,046 Use 360 days a year.arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning