Question

Empire State Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that the ending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandise inventory at December 31, 2018, was correct.

Requirements

3. Compute the inventory turnover and days’ sales in inventory using the corrected income statements for the three years. (Round all numbers to two decimals.)

Short answer

2019 2018 2017

Inventory Turnover--------------- 5.82 3.6 2.05

Days’ sales in inventory-------- 62.71 101.38 178.05

Step-by-step solution

Correct Income statement

Inventory turnover

$$\begin{gathered} \mathbf{For}\mathbf{}\mathbf{2019}\mathbf{=}\frac{\mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{goods}\mathbf{}\mathbf{sold}\mathbf{}}{\mathbf{Average}\mathbf{}\mathbf{Inventory}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{\$}\mathbf{131}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{23}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{2} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{\$}\mathbf{131}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{500}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{5}\mathbf{.}\mathbf{82} \\ \mathbf{For}\mathbf{}\mathbf{2018}\mathbf{=}\frac{\mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{goods}\mathbf{}\mathbf{sold}\mathbf{}}{\mathbf{Average}\mathbf{}\mathbf{Inventory}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{105}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{37}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{2} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{\$}\mathbf{105}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{29}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{3}\mathbf{.}\mathbf{6} \\ \mathbf{For}\mathbf{}\mathbf{2017}\mathbf{=}\frac{\mathbf{Cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{goods}\mathbf{}\mathbf{sold}\mathbf{}}{\mathbf{Average}\mathbf{}\mathbf{Inventory}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{5000}}{\mathbf{\$}\mathbf{46}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{37}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{2} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{\$}\mathbf{85}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{41}\mathbf{,}\mathbf{500}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{2}\mathbf{.}\mathbf{05} \end{gathered}$$

Days’ sales in inventory

$$\begin{gathered} \mathbf{For}\mathbf{}\mathbf{2019}\mathbf{=}\frac{\mathbf{365}}{\mathbf{}\mathbf{Inventory}\mathbf{}\mathbf{turnover}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{365}}{\mathbf{5}\mathbf{.}\mathbf{82}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{62}\mathbf{.}\mathbf{71} \\ \mathbf{For}\mathbf{}\mathbf{2018}\mathbf{=}\frac{\mathbf{365}}{\mathbf{}\mathbf{Inventory}\mathbf{}\mathbf{turnover}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{365}}{\mathbf{3}\mathbf{.}\mathbf{6}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{101}\mathbf{.}\mathbf{38} \\ \mathbf{For}\mathbf{}\mathbf{2017}\mathbf{=}\frac{\mathbf{365}}{\mathbf{}\mathbf{Inventory}\mathbf{}\mathbf{turnover}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{365}}{\mathbf{2}\mathbf{.}\mathbf{05}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{178}\mathbf{.}\mathbf{05} \end{gathered}$$