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Financial statement data for years ending December 31 for Holland Company follow: a. Determine the inventory turnover for 20Y4 and 20Y3. b. Determine the days’ sales in inventory for 20Y4 and 20Y3. Use 365 days and round to one decimal place. c. Does the change in inventory turnover and the days’ sales in inventory from 20Y3 to 20Y4 indicate a favorable or an unfavorable trend?
Financial Accounting
Solutions
Financial Accounting
Financial statement data for years ending December 31 for Holland Company follow:
- a. Determine the inventory turnover for 20Y4 and 20Y3.
- b. Determine the days’ sales in inventory for 20Y4 and 20Y3. Use 365 days and round to one decimal place.
- c. Does the change in inventory turnover and the days’ sales in inventory from 20Y3 to 20Y4 indicate a favorable or an unfavorable trend?
(a)
Determine inventory turnover for 20Y4 and 20Y3.
Explanation of Solution
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:
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
(b)
Determine days’ sales in inventory ratio for 20Y4 and 20Y3.
(c)
Explain if change in turnover and days’ sales in inventory from 20Y3 to 20Y4 indicate favorable or unfavorable trend.
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