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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
Chapter 6, Problem 6.10.4MBA
Textbook Problem
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Accounts receivable and inventory turnover
The following data (in millions) were adapted from recent financial statements of International Paper Company (IP) and Wal-Mart Stores Inc. (WMT)

Chapter 6, Problem 6.10.4MBA, Accounts receivable and inventory turnover The following data (in millions) were adapted from recent

Compute the days’ sales in inventory for International Paper and ‘a1-Man. Round to nearest day.

To determine

Concept Introduction:

Day's sales in inventory:

Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated by dividing the 365 days by Inventory Turnover Ratio. The formula of the Days sales in inventory is as follows:

  Days sales in inventory=365Inventory Turnover Ratio

Inventory Turnover Ratio:

Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:

  Inventory Turnover Ratio=Cost of goods soldAverage inventory

Note: Average inventory is calculated with the help of following formula:

  Average inventory=(Beginning inventory + Ending inventory)2

To Calculate:

The Days sales in inventory for both companies

Explanation of Solution

The Days sales in inventory for both companies are calculated as follows:

    $ in Millions International Paper Wal-Mart
    Cost of goods sold (A) $ 16,254 $ 365,086
    Beginning Inventory (B) $ 2,825 $ 44,858

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