Q 25E-2 - Horngren'S Financial And Managerial Accounting

Question

Calm Day reported the following income statement for the year ended December 31, 2019:

 

CALM DAY
Income Statement
Years Ended December 31, 2019
Net Sales Revenue		\( 128,000
Cost of Goods Sold:
Beginning Merchandise Inventory	\) 9,000
Net Cost of Purchases	62,000
Cost of Goods Available for Sale	71,000
Less: Ending Merchandise Inventory	12,200
Cost of Goods Sold		58,800
Gross Profit		69,200
Operating Expenses		41,600
Net Income		$ 27,600

Requirements

2. Compute Calm Day’s days’ sales in inventory for the year. (Round to two decimal places.)

Step-by-Step Solution

Answer

Day’s sales on inventory: 65.77 days

Step-by-Step-Solution Step 1: Day’s sales in inventory

Day’s sales in inventory is the no. of days required to convert the inventory into sales. It is computed by dividing the no. of days in the period by the inventory turnover ratio.

Step 2: Day’s sales in inventory for Calm Days

$$\begin{gathered} \mathit{D}\mathit{a}\mathit{y}\mathbf{\text{'}}\mathit{s}\mathit{s}\mathit{a}\mathit{l}\mathit{e}\mathit{s}\mathit{o}\mathit{f}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{=}\frac{\mathbf{N}\mathbf{o}\mathbf{.}\mathbf{o}\mathbf{f}\mathbf{d}\mathbf{a}\mathbf{y}\mathbf{s}\mathbf{i}\mathbf{n}\mathbf{a}\mathbf{y}\mathbf{e}\mathbf{a}\mathbf{r}}{\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{T}\mathbf{u}\mathbf{r}\mathbf{n}\mathbf{o}\mathbf{v}\mathbf{e}\mathbf{r}} \\ \mathbf{=}\frac{\mathbf{365}}{\mathbf{5}\mathbf{.}\mathbf{55}} \\ \mathbf{=}\mathbf{65}\mathbf{.}\mathbf{77}\mathit{D}\mathit{a}\mathit{y}\mathit{s} \end{gathered}$$