Question

Which of the following is the correct formula to calculate inventory turnover?

Group of answer choices

Inventory turnover = Cost of goods sold / Average merchandise inventory

Inventory turnover = Cost of goods sold × Average merchandise inventory

Inventory turnover = Cost of goods sold + Average merchandise inventory

Inventory turnover = Cost of goods sold - Average merchandise inventory

Which of the following is the correct order of subtotals that appear on a multi-step income statement?

Group of answer choices

Operating income, Gross profit, Net income

Gross profit, Net sales revenue, Net income

Net income, Operating income, Net income

Gross profit, Operating income, Net income

Answer 1

Answer 1: Option A

Inventory turnover is calculated as Cost of Goods Sold/ Average Merchandise Inventory

Inventory turnover is an efficency ratio that shows how many times the company has sold its average merchandise inventory. It is important to have high inventory turnover ratio, as low ratio indicates company is not able to convert inventory into sales and it is incurring high storage and other holding costs. Company with high inventory turnover ratio shows company can easily turn its inventory into cash, which is very important for merchandising company. Average merchandise inventory is calculated as average of beginning and ending inventory for a period.

Answer 2 : Option D:

Gross Profit: Operating Income: Net Income is the correct order of subtotals that appear on multi step income statement.

First Gross Profit is calculated by subtracting cost of goods sold from Net Sales Revenue, then Operating expenses is subtracted from gross profit to calculate Operating Income. Operating Income shows income earned by business from its operating or main business then other items are adjusted like loss on sale of asset, interest expenses,tax expense etc. other gains like interest income, dividend income, gain on sale on assets to calculate Net Income.