Question

Simon Company's year-end balance sheets follow.

At December 31 Current Yr 1 Yr Ago 2 Yrs Ago
Assets
Cash $32,935 $38,498 $38,545
Accounts receivable, net 89,200 62,800 51,100
Merchandise inventory 114,000 85,000 51,000
Prepaid expenses 10,606 10,106 4,283
Plant assets, net 295,220 270,804 233,072
Total assets $541,961 $467,208 $378,000
Liabilities and Equity
Accounts payable $138,997 $81,327 $51,393
Long-term notes payable secured by mortgages on plant assets 104,945 110,682 86,044
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 135,519 112,699 78,063
Total liabilities and equity $541,961 $467,208 $378,000

The company's income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit:

For Year Ended December 31 Current Yr 1 Yr Ago
Sales $704,549 $555,978
Cost of goods sold $429,775 $361,386
Other operating expenses 218,410 140,662
Interest expense 11,977 12,787
Income tax expense 9,159 8,340
Total costs and expenses 669,321 523,175
Net income $35,228 $32,803
Earnings per share $2.17 $2.02

a) Compute inventory turnover.

Answer 1

To compute inventory turnover, divide the cost of goods sold by the average inventory. For Simon Company, the inventory turnover is approximately 4.32.

Step-by-step explanation:

To compute inventory turnover, we divide the cost of goods sold by the average inventory. The formula is:

Inventory Turnover = Cost of Goods Sold / Average Inventory

In this case, the cost of goods sold for the current year is $429,775. The average inventory is the sum of the merchandise inventory at the current year-end ($114,000) and the merchandise inventory a year ago ($85,000), divided by 2. So the average inventory is $99,500.

Plugging the values into the formula, we get:

Inventory Turnover = $429,775 / $99,500 ≈ 4.32

Therefore, the inventory turnover for Simon Company is approximately 4.32.

Answer 2

Inventory turnover is a measure of how quickly a company sells its inventory. To calculate the inventory turnover for Simon Company, divide the cost of goods sold by the average inventory.

Step-by-step explanation:

Inventory turnover is a measure of how quickly a company sells its inventory. It is calculated by dividing the cost of goods sold by the average inventory. To calculate the inventory turnover for Simon Company, we need to find the average inventory and the cost of goods sold.

1. The average inventory is calculated by adding the inventory at the beginning and end of the year and dividing by 2. In this case, the average inventory is ($85,000 + $114,000) / 2 = $99,500.
2. The cost of goods sold is given as $429,775.
3. Finally, the inventory turnover is calculated by dividing the cost of goods sold by the average inventory. So, the inventory turnover for Simon Company is $429,775 / $99,500 = 4.32.

Therefore, the inventory turnover for Simon Company is 4.32.