Selected year-end data for the Brayer Company are presented below:
$\begin{array}{|l|r|}
\hline \text { Current Liabilities } & \$ 600,000 \
\hline \text { Acid-Test Ratio } & 2.5 \text { to } 1 \
\hline \text { Current Ratio } & 3.0 \text { to } 1 \
\hline \text { Cost of Goods Sold } & \$ 500,000 \
\hline
\end{array}$
The company has no prepaid expenses,and inventories remained unchanged during the year.Based on these data,the company's inventory turnover ratio for the year was closest to which of the following?
A) 1.20 times.
B) 1.67 times.
C) 2.33 times.
D) 2.40 times.

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold / Average Inventory. Given that the Acid-Test Ratio (Quick Ratio) is 2.5 and the Current Ratio is 3.0, we can find the inventory amount by using the formula for these ratios. The Acid-Test Ratio formula is (Current Assets - Inventory) / Current Liabilities = 2.5, and the Current Ratio formula is Current Assets / Current Liabilities = 3.0. With Current Liabilities of $600,000, Current Assets are $1,800,000 (3.0 * $600,000). For the Acid-Test Ratio, (Current Assets - Inventory) = 2.5 * $600,000 = $1,500,000. Therefore, Inventory = $1,800,000 (Current Assets) - $1,500,000 = $300,000. The inventory turnover ratio is then $500,000 (Cost of Goods Sold) / $300,000 (Inventory) = 1.67 times.

Selected Year-End Data for the Brayer Company Are Presented Below