Multiple Choice
Which of the following does the FIFO (First-In, First-Out) inventory method require?
20
views
5. Inventory
Inventory Errors
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Over the past year, how often did Polk Software Inc. sell and replace its inventory? (This is typically measured by which financial ratio?)
A
Inventory Turnover Ratio
B
Debt-to-Equity Ratio
C
Gross Profit Margin
D
Current Ratio
Verified step by step guidance1
Identify the financial ratio that measures how often a company sells and replaces its inventory. This ratio is known as the Inventory Turnover Ratio.
Understand the formula for the Inventory Turnover Ratio: \( \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}} \).
Locate the necessary financial data from Polk Software Inc.'s financial statements. Specifically, find the Cost of Goods Sold (COGS) from the income statement and the Average Inventory from the balance sheet.
Calculate the Average Inventory by taking the sum of the beginning inventory and ending inventory, then dividing by 2: \( \text{Average Inventory} = \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} \).
Plug the values for COGS and Average Inventory into the formula for Inventory Turnover Ratio to determine how often Polk Software Inc. sold and replaced its inventory over the past year.
Related Videos
Related Practice
Inventory Errors practice set
Problem sets built by lead tutorsExpert video explanations