Use the following information to answer questions 26-27. The following informati

Question

Use the following information to answer questions 26-27. The following information was available for Riley Limited at December 31, 2015: Beginning inventory... $ 120,000 Ending inventory Cost of goods sold 150,000 810,000 1,400,000 26. Riley's inventory turnover was (a) 5.0 times. (b) 6.0 times. (c) 7.5 times. (d) 9.0 times. 27. Riley's days in inventory was (a) 40.6 days. (b) 48.7 days. (c) 60.8 days. (d) 73.0 days. 28. The lower of cost and net realizable value basis of valuing inventories ensures that inventories are (a) valued at their current cost. (b) valued at their selling price. (c) not under-valued. (d) not over-valued.

Explanation / Answer

Answer 26.

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($120,000 + $150,000) / 2
Average Inventory = $135,000

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $810,000 / $135,000
Inventory Turnover = 6.0 times

Answer 27.

Days’ in Inventory = 365 / Inventory Turnover
Days’ in Inventory = 365 / 6
Days’ in Inventory = 60.8 days

Answer 28.

The lower of cost and net realizable value basis of valuing inventory ensures that inventories are valued at their selling price.

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