Question

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?

Answer 1

Answer:

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.