Answer (A) is correct . Net sales can be calculated indirectly from the inventory turnover ratio and the other ratios given. If the current ratio is 2.0, and current liabilities are $120,000, current assets must be $240,000 (2.0 × $120,000). Similarly, if the quick ratio is 1.5, the total quick assets must be $180,000 (1.5 × $120,000). The only major difference between quick assets and current assets is that inventory is not included in the definition of quick assets. Consequently, ending inventory must be $60,000 ($240,000 – $180,000). The inventory turnover ratio (COGS ÷ average inventory) is 8. Thus, cost of goods sold must be 8?times average inventory, or $480,000, given no material difference between average and ending inventory. If the gross profit margin is 40%, the cost of goods sold percentage is 60%, cost of goods sold equals 60% of sales, and net sales must be $800,000 ($480,000 ÷ 60%).
Answer (B) is incorrect because Cost of goods sold is $480,000.
Answer (C) is incorrect because The amount of $1,200,000 is based on a 60% gross profit margin.
Answer (D) is incorrect because Current assets equal $240,000.
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Sheridan’s net sales for the year were