Chapter 6: Q 25E-1 (page 365)

Calm Day reported the following income statement for the year ended December 31, 2019:
CALM DAY
Income Statement
Years Ended December 31, 2019
Net Sales Revenue
$ 128,000
Cost of Goods Sold:
Beginning Merchandise Inventory
$ 9,000
Net Cost of Purchases
62,000
Cost of Goods Available for Sale
71,000
Less: Ending Merchandise Inventory
12,200
Cost of Goods Sold

58,800
Gross Profit
69,200
Operating Expenses
41,600
Net Income
$ 27,600
Requirements
1. Compute Calm Day’s inventory turnover rate for the year. (Round to two decimal places.)

Short Answer

Expert verified

Inventory Turnover Ratio: 5.55

Step by step solution

Step-by-Step-SolutionStep 1: Inventory turnover

Inventory turnover is the rate of converting inventory into sales. It is the ratio of the total cost of issued or sold inventory to the average inventory. The average inventory provides a basis for comparing the cost of goods sold for the entire period.

Inventory turnover rate or Calm Day

$A v e r a g e I n v e n t o r y = \frac{O p e n i n g I n v e n t o r y + C l o s i n g I n v e n t o r y}{2} = \frac{$ 9, 000 + $ 12, 200}{2} = \frac{$ 21, 200}{2} = $ 10, 600$

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	2019	2018	2017
Net Sales Revenue	\( 212,000	\) 161,000	\( 170,000
Cost of Goods Sold:
Beginning Merchandise Inventory	\)22,000	\(28,000	\)41,000
Net cost of purchase	131,000	100,000	86,000
Cost of goods available for sale	153,000	128,000	127,000
Less: Ending Merchandise Inventory	34,000	22,000	28,000
Cost of goods sold	119,000	106,000	99,000
Gross Profit	93,000	55,000	71,000
Operating Expenses	63,000	28,000	39,000
Net Income	\( 30,000	\) 27,000	$ 32,000

Short Answer

Step by step solution

Step-by-Step-SolutionStep 1: Inventory turnover

Inventory turnover rate or Calm Day

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CALM DAY
Income Statement
Years Ended December 31, 2019
Net Sales Revenue		\( 128,000
Cost of Goods Sold:
Beginning Merchandise Inventory	\) 9,000
Net Cost of Purchases	62,000
Cost of Goods Available for Sale	71,000
Less: Ending Merchandise Inventory	12,200
Cost of Goods Sold		58,800
Gross Profit		69,200
Operating Expenses		41,600
Net Income		$ 27,600