Question

1.) badBanana co. has an average age of inventory equal to 25 days. if its end of year inventory level is $8,500, then what does that imply for the cost of goods sold during the year? (round to the nearest dollar)

a.) $582

b.) $4964

c.) $21,250

d.) $124,100

2.) What Ratio measures the ability of the firm to satisfy its short term obligations as they come due?

a.) TImes Interest and earned ratio

b.) current ratio

c.) Inventory turnover ratio

3.) Which of the following represents an inflow of cash?

a.) A decrease in any liability

b.) repurchase or retirement of stock

c.) A decrease in any asset

Answer 1

1)

DAYS OF HOLDING INVENTORY = 365 DAYS/ INVENTORY TURNOVER

25 DAYS = 365 DAYS/INVENTORY TURNOVER

INVENTORY TURNOVER = 365/25 = 14.6 TIMES

INVENTORY TURNOVER = COGS / AVERAGE STOCK

14,6 TIMES = COGS/ 8500

COGS = 14.6 X 8500 = 124100

Answer : d) 124100

2)

What Ratio measures the ability of the firm to satisfy its short term obligations as they come due?

Current ratio and Liquid ratio are used to measure short term liquidity. Times interest ratio is used to measure long term obligations. Inventory turnover ratio is used to measure efficiency of the company. so correct answer is " current ratio"

Answer : b) : Current ratio

3)

Which of the following represents an inflow of cash?

A decrease in liability means payment so it reduces cash, so it is not the answer.

Repurchase of stock leads to cash payment so it also reduces cash, so it is also not the answer.

A decrease in asset means asset is sold and cash is received, which will increase cash. so it the correct answer

c.) A decrease in any asset. (Thumbs up please)