Question

Multiple Choice Question 121 The following information pertains to Ortiz Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments $ 45000 Accounts receivable (net) 25000 Inventory 12000 Property, plant and equipment (net) 210000 Total Assets $292000 Liabilities and Stockholders’ Equity Current liabilities $ 50000 Long-term liabilities 90000 Stockholders’ equity—common 152000 Total Liabilities and Stockholders’ Equity $292000 Income Statement Sales (net) $ 120000 Cost of goods sold 66000 Gross profit 54000 Operating expenses 30000 Net income $24000 Number of shares of common stock 6000 Market price of common stock $20 Dividends per share 0.5 What is the inventory turnover for Ortiz?

Answer 1

Answer:

Inventory TO 5.5

This means Ortiz sales his inventory 5.5 times per year.

Explanation:

Inventory turnover for Ortiz

$\frac{COGS}{Average Inventory} = Inventory Turnover$

​where:

$Average Inventory=(Beginning Inventory + Ending Inventory)/2$

COGS:     66,000

In this case the average inventory is provided already: 12,000

$\frac{66000}{12000} = Inventory Turnover$

Inventory TO 5.5

This means Ortiz sales his inventory 5.5 times per year.