Question

Extotech has sales of $50 million, cost of goods sold for the same period of $15 million, and average inventory of $250,000. What is Exotech’s inventory turnover?

                a.            200

                b.            20

                c.             60

                d.            150

An inventory turn ratio of 25 means a company’s average quantity of goods in inventory sold within how many days?

                a.            5.2

                b.            25

                c.             14.6

                d.            13.3

Lid On It hat shop had $1.55 million in annual sales. During the same period its cost of goods sold was $620,000 and held average inventory of $100,000. What is the inventory turnover?

                a.            10.0

                b.            5.7

                c.             6.2

                d.            15.5

Parker Lane Cafe currently has $160,000 in cash, $380,000 in inventory, and $40,000 in accounts receivable. The company also has $40,000 in accounts payable, and $10,000 in other current liabilities. What is its quick ratio?

                a.            4: 1

                b.            7.5: 1

                c.             3.2: 1

                d.            11.6: 1

    The Golden Braid Bookstore currently has $340,000 in cash, $280,000 in inventory, and $40,000 in accounts receivable. The company also has $65,000 in accounts payable, and $15,000 in other current liabilities. What is its current (or working capital) ratio?

                a.            5.75:1

                b.            8.25 :1

                c.             4.25:1

                d.            4.75 :1

    Act II Costumes currently has $120,000 in cash, $340,000 in inventory, and $20,000 in accounts receivable. The company also has $20,000 in accounts payable, and $20,000 in other current liabilities. What is its current (or working capital) ratio?

                a.            9: 1

                b.            12: 1

                c.             4.75: 1

                d.            7:1

    Which report from The KSY Manufacturing Company will have the necessary information to calculate its Current Ratio?

                a.            Statement of Cash Flows

                b.            Operating Statement (Profit and Loss)

                c.             Balance Sheet

                d.            Statement of Retained Earnings

    The Golden Braid Bookstore currently has $340,000 in cash, $280,000 in inventory, and $40,000 in accounts receivable. The company also has $65,000 in accounts payable, and $15,000 in other current liabilities. What is its quick ratio?

                a.            8.25: 1

                b.            4.25: 1

                c.             5.75: 1

                d.            4.75: 1

    Act II Costumes currently has $120,000 in cash, $340,000 in inventory, and $20,000 in accounts receivable. The company also has $20,000 in accounts payable, and $20,000 in other current liabilities. What is its quick ratio?

                a.            9: 1

                b.            5.5: 1

                c.             12: 1

                d.            3.5: 1

Answer 1

1. The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period.

Inventory Turnover Ratio = Cost of goods sold / Average inventory.

In the given case the cost of goods sold = $ 15 million and average inventory ,= $ 250,000 ( 0.25 million).

Thus inventory turnover ratio = $ 15 million / 0 .25 = 60 .

Thus the correct Option is--------C i.e 60.

2. Companies average quantity of goods in inventory in days is equal to the inventory turnover devided by 365 days of an year.

Thus average inventory in days = 365 / 25 = 14.6 days.

Thus the correct option is----------C i.e 14.6 days.

3. As discussed above inventory turnover = Cost of goods sold ,/ average inventory.

Turnover Ratio = 620000 / 100000 = 6.2

Thus the correct Option is--------C. I.e 6.2

4. Quick ratio is a liquidity ratio which calculates the short-term ability of companies to pay its liabilities. It is calculated by deviding quick current assets with quick current liabilities. It does not consider the stocks

Here Quick Ratio =( Cash + Accounts receivable ) / ( Accounts payable + other current liabilities )

Quick ratio = ( 160000 + 4000 ) / ( 40000 + 10000)

Quick ratio = 200000 ,/ 50000 = 4 : 1

Thus the correct Option is---------A. i.e 4:1

5. Quick ratio = ( 340000+40000) / ( 65000+15000)

Quick ratio = 4.75 : 1.

Thus the correct Option is--------D i.e 4.75 : 1.

6. Current ratio covers the inventory in its calculation and takes current assets / current liabilities.

Current ratio. = Current assets ,/ current liabilities

Current ratio = ( 120000+340000+20000) / ( 20000+20000)

Current ratio = 12 : 1

Thus the correct Option is--------B.

7. The current ratio is calculated using the current assets and current liabilities which is shown specifically in balance sheet and not in operating profit or cash flow or statement of retained earnings.

The correct Option is--------C i.e Balance sheet