Selected data for Irma's Store appear below. 2017 2016 Net sales $ 800 , 000 $ 520 , 000 Cost of goods sold 600 , 000 345 , 000 Inventory at end of year 65 , 000 85 , 000 Accounts receivable at end of year 140 , 000 110 , 000 \begin{array} { l r r } & { 2017 } & { 2016 } \ ext { Net sales } & \$ 800,000 & \$ 520,000 \ ext { Cost of goods sold } & 600,000 & 345,000 \ ext { Inventory at end of year } & 65,000 & 85,000 \ ext { Accounts receivable at end of year } & 140,000 & 110,000\end{array} Net sales Cost of goods sold Inventory at end of year Accounts receivable at end of year 2017 $800 , 000 600 , 000 65 , 000 140 , 000 2016 $520 , 000 345 , 000 85 , 000 110 , 000 InstructionsCompute the following for 2017:(a) Gross profit rate.(b) Inventory turnover.(c) Accounts receivable turnover.

Question

Selected data for Irma's Store appear below. 2017 2016  Net sales  $ 800 , 000 $ 520 , 000  Cost of goods sold  600 , 000 345 , 000  Inventory at end of year  65 , 000 85 , 000  Accounts receivable at end of year  140 , 000 110 , 000 \begin{array} { l r r }  &  { 2017 }  &  { 2016 } \	ext { Net sales }  &  \$ 800,000  &  \$ 520,000 \	ext { Cost of goods sold }  &  600,000  &  345,000 \	ext { Inventory at end of year }  &  65,000  &  85,000 \	ext { Accounts receivable at end of year }  &  140,000  &  110,000\end{array}  Net sales   Cost of goods sold   Inventory at end of year   Accounts receivable at end of year  ​ 2017 $800 , 000 600 , 000 65 , 000 140 , 000 ​ 2016 $520 , 000 345 , 000 85 , 000 110 , 000 ​   InstructionsCompute the following for 2017:(a) Gross profit rate.(b) Inventory turnover.(c) Accounts receivable turnover.

Carson Hager · Accepted Answer

Final Answer :  (a)  Gross profit  =  Net Sales  −  Cost of goods sold  = $ 800 , 000 − $ 600 , 000 = $ 200 , 000 \begin{aligned}	ext { Gross profit }  &  = 	ext { Net Sales } - 	ext { Cost of goods sold } \ &  = \$ 800,000 - \$ 600,000 \ &  = \$ 200,000\end{aligned}  Gross profit  ​ =  Net Sales  −  Cost of goods sold  = $800 , 000 − $600 , 000 = $200 , 000 ​  Gross profit rate  =  Gross profit  ÷  Net sales  = $ 200 , 000 ÷ $ 800 , 000 = 25 % \begin{aligned}	ext { Gross profit rate }  &  = 	ext { Gross profit } \div 	ext { Net sales } \ &  = \$ 200,000 \div \$ 800,000 \ &  = 25 \%\end{aligned}  Gross profit rate  ​ =  Gross profit  ÷  Net sales  = $200 , 000 ÷ $800 , 000 = 25% ​ (b)  Inventory turnover  =  Cost of goods sold  ÷  Average inventory  = $ 600 , 000 ÷ [ ( $ 65 , 000 + $ 85 , 000 ) ÷ 2 ] = 8  times  \begin{aligned}	ext { Inventory turnover }  &  = 	ext { Cost of goods sold } \div 	ext { Average inventory } \ &  = \$ 600,000 \div [ ( \$ 65,000 + \$ 85,000 ) \div 2 ] \ &  = 8 	ext { times }\end{aligned}  Inventory turnover  ​ =  Cost of goods sold  ÷  Average inventory  = $600 , 000 ÷ [( $65 , 000 + $85 , 000 ) ÷ 2 ] = 8  times  ​ (c)  Accounts receivable turnover  =  Net credit sales  ÷  Average accounts receivable  = $ 800 , 000 ÷ [ ( $ 140 , 000 + $ 110 , 000 ) ÷ 2 ] = $ 800 , 000 ÷ $ 125 , 000 = 6.4  times  \begin{aligned}	ext { Accounts receivable turnover }  &  = 	ext { Net credit sales } \div 	ext { Average accounts receivable } \ &  = \$ 800,000 \div [ ( \$ 140,000 + \$ 110,000 ) \div 2 ] \ &  = \$ 800,000 \div \$ 125,000 \ &  = 6.4 	ext { times }\end{aligned}  Accounts receivable turnover  ​ =  Net credit sales  ÷  Average accounts receivable  = $800 , 000 ÷ [( $140 , 000 + $110 , 000 ) ÷ 2 ] = $800 , 000 ÷ $125 , 000 = 6.4  times  ​

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