Question

Green Thumb Garden Supplies reported the following information for 2017 and 2018.
                                                                                       2018           2017
       Assets
       Cash                                                                 $ 50,000    $ 45,000
       Accounts receivable                                             35,000        25,000
       Inventory                                                             25,000        20,000
       Property, plant, and equipment                         240,000      210,000
       Total assets                                                      $350,000    $300,000

       Liabilities and Shareholders’ Equity
       Current liabilities                                             $ 65,000    $ 60,000
       Non-current liabilities                                        110,000        90,000
       Shareholders’ equity—common                        175,000      150,000
       Total liabilities and shareholders’ equity        $350,000    $300,000

       Income statement for 2018
       Sales                                                                  $95,000
       Cost of goods sold                                               45,000
       Gross profit                                                         50,000
       Operating expenses                                             15,000
       Income before income tax                                   35,000
       Income tax expense                                               5,000
       Net income                                                        $30,000

What is the inventory turnover ratio for 2018?

2.3 times

2.0 times

1.8 times

0.5 times

Answer 1

Working Notes:
	Calculation of average Inventory
	Average inventory= ($ 25,000 + $ 20,000) /2
	Average inventory=   $ 22,500
Solution :
	Inventory turnover Ratio = Cost of Goods Sold / Average Inventory
	Inventory turnover Ratio =
		Year 2018
	Inventory turnover Ratio =
	COGS	$                 45,000
	Divide By =	"/" By
	Average inventory=	$                 22,500
	Inventory turnover Ratio = (Times)	2.0
	Answer = Option 2 = 2.0 Times