Answer:
A. Inventory turnover ratio = 5.927
B. Current ratio = 0.95
C. Current ratio after adjusting for the LIFO reserve = 0.97
Explanation:
Requirement A
We know,
Inventory turnover ratio = Cost of goods sold ÷ Average inventory
Given,
Cost of goods sold = 164,682
Average inventory = Beginning inventory + Ending inventory
Average inventory = $13,862 + $13,921
Average inventory = $27,783
Putting the values into the formula, we will get
Inventory turnover ratio = Cost of goods sold ÷ Average inventory
Inventory turnover ratio = $164,682 ÷ $27,783
Inventory turnover ratio = 5.927
We know,
Days in inventory = $365 ÷ $5.927
Days in inventory = 61.6 days
Requirement B
We know,
Current ratio = Current asset ÷ Current liabilities
Given,
Current asset = $64,131
Current liabilities = $67,822
Putting the values into the formula, we can get
Current ratio = Current asset ÷ Current liabilities
Current ratio = $64,131 ÷ $67,822
Current ratio = 0.95
We know,
The current ratio shows us how a company pays its current liabilities.
We assume the inventory is reported in the current asset using the LIFO method.
Requirement C
We know,
Current ratio after adjusting for the LIFO reserve = (Current asset + LIFO reserve) ÷ Current liabilities.
Given,
Current asset = $64,131
LIFO reserve = 1,508
Current liabilities = $67,822
Putting the values into the formula, we can get
Current ratio after adjusting for the LIFO reserve = (Current asset + LIFO reserve) ÷ Current liabilities
Current ratio after adjusting for the LIFO reserve = ($64,131 + 1,508) ÷ $67,822
Current ratio after adjusting for the LIFO reserve = 65,639 ÷ $67,822 = 0.97
Current ratio after adjusting for the LIFO reserve = 0.97
