Answer (A) is correct . Palmito’s payables turnover can be calculated as follows: Payables turnover = Purchases ÷ Average accounts payable = $25,700 ÷ [($3,320 + $3,680) ÷ 2] ? = $25,700 ÷ $3,500 = 7.3 Purchases are calculated as follows: Cost of goods sold $24,500 Plus Ending inventory 7,600 Goods available for sale $32,100 Less Beginning inventory (6,400) Purchases $25,700
Answer (B) is incorrect because A turnover of 7.0 times results from using cost of goods sold, rather than accrual-basis purchases, in the numerator.
Answer (C) is incorrect because A turnover of 16.96 times results from using credit sales, rather than cost of goods sold, in the numerator, and ending, rather than average, inventory in the denominator.
Answer (D) is incorrect because A turnover of 17.8 times results from using credit sales rather than purchases in the numerator.
|
Total sales for the year were $85,900, of which $62,400 were credit sales. The cost of goods sold was $24,500. Palmito’s payables turnover ratio for the year was