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27 October, 16:39

Polk Software Inc. has a quick ratio of 2.00, $29,475 in cash, $16,375 in accounts receivable, some inventory, total current assets of $65,500, and total current liabilities of $22,925. The company reported annual sales of $500,000, and cost of goods sold equal to 75% of sales in the most recent annual report. Over the past year, how often did Polk Software Inc. sell and replace its inventory?

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  1. 27 October, 17:36
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    Inventory Turnover = 19.08 times

    Inventory Days = 19.13 days

    Explanation:

    Polk Software Inc.

    Quick ratio 2.00,

    Cash $29,475

    Accounts receivable $16,375

    Inventory=? = $19650

    Total current assets $65,500

    Total current liabilities $22,925

    Annual sales $500,000,

    Cost of Goods Sold 75% of sales = $375,000

    Quick Ratio = Current Assets - Inventory/Current liabilities

    Quick Ratio * Current liabilities = Current Assets - Inventory

    2 * $22,925 = $65,500 - Inventory

    45850 = $65,500 - Inventory

    $65,500-45850 = Inventory

    Inventory = $19650

    Inventory Turnover = Cost Of Good Sold / Average Inventory

    We take the current inventory as the average inventory

    Inventory Turnover = $ 375,000 / 19650 = 19.08 times

    Inventory Turnover tells us that how often the inventory is converted to sales.

    High inventory turnover means how often inventory is converted to sales.

    Inventory Days = 365/inventory Turnover = 365/19.08 = 19.13 days

    Inventory days means the average number of days the company holds ints inventory before it is sold.
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