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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Comparing inventory ratios for three companies

The general merchandise retail industry has a number of segments represented by the following companies:

Chapter 7, Problem 7.6CP, Comparing inventory ratios for three companies The general merchandise retail industry has a number , example  1

For a recent year, the following cost of merchandise sold and beginning and ending inventories have been provided from corporate annual reports (in millions) for these three companies:

Chapter 7, Problem 7.6CP, Comparing inventory ratios for three companies The general merchandise retail industry has a number , example  2

a. Determine the inventory turnover ratio for all three companies. Round to one decimal place.

b. Determine the number of days’ sales in inventory for all three companies. Use 365 days and round to one decimal place.

c. Interpret these results based on each company's merchandise concept.

a.

To determine

Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:

Inventory turnover=Cost of goods soldAverage inventory

Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. The formula to calculate the days’ sales in inventory ratio is as follows:

Days' sales in inventory=Days in accounting periodInventory turnover

The inventory turnover for Company C, Company W and Company JCP.

Explanation

The inventory turnover ratio is calculated by dividing cost of goods sold by average inventory during the period. The average inventory is calculating by dividing beginning inventory and ending inventory by 2...

b.

To determine

The number of Days’ sales in inventory for all three Companies.

c.

To determine

To Interpret: The results based on each company’s merchandise concept.

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