Question

Excerpts from Dowling Company's December 31, 2018 and 2017, financial statements and key ratios are presented below (all numbers are in millions):2018 2017Accounts receivable (net) $ 20 $ 16Net sales $ 115 100Cost of goods sold 60 55Net income 20 17Inventory turnover 5.22Return on assets 10.3 %Equity Multiple 2.36Dowling's average inventory balance for 2018 is (rounded):

(A) 11.(B) 12.5.(C) 12.(D) 11.5.

Answer 1

Option (D) is correct.

Step-by-step explanation:

Given that,

2018:

Inventory turnover = 5.22

Cost of goods sold = $60

Net sales = $115

Return on assets = 10.3%

Net income = $20

Inventory turnover = Cost of goods sold ÷ Average inventory

Average inventory = Cost of goods sold ÷ Inventory turnover

Average inventory = $60 ÷ 5.22

= 11.49 or 11.5(Approx)