Dahn Corporation has provided the following financial data: Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share.Thecompany's inventory turnover for Year 2 is closest to:

A) 6.54
B) 5.67
C) 6.07
D) 0.87

Question

Dahn Corporation has provided the following financial data:

Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share.Thecompany's inventory turnover for Year 2 is closest to:

A) 6.54
B) 5.67
C) 6.07
D) 0.87

Dinesh Tekwani · Accepted Answer

Final Answer : C, Explanation :  Inventory turnover ratio = Cost of Goods Sold / Average InventoryWe don't have the cost of goods sold in the given data, but we have the dividends paid, which can be used to calculate the net income.Dividends paid = Net income - Retained earnings$1,600 = Net income - $0Net income = $1,600We can estimate the cost of goods sold by assuming a gross profit margin. Let's assume a gross profit margin of 40% and calculate the cost of goods sold:Gross profit margin = Gross profit / Sales0.40 = Gross profit / SalesGross profit = 0.40 x SalesNet sales = Market price per share x Number of shares outstandingNet sales = $2.37 x Number of shares outstandingNow we can calculate the cost of goods sold:Net sales - Cost of goods sold = Gross profit$2.37 x Number of shares outstanding - Cost of goods sold = 0.40 x $2.37 x Number of shares outstanding$2.37 x Number of shares outstanding - Cost of goods sold = $0.9484 x Number of shares outstandingCost of goods sold = $1.4216 x Number of shares outstandingInventory turnover ratio = Cost of Goods Sold / Average InventoryAverage Inventory = (Beginning Inventory + Ending Inventory) / 2We don't have the beginning inventory, but we can estimate it by assuming a certain inventory turnover ratio. Let's assume an inventory turnover ratio of 6 and calculate the beginning inventory:Inventory turnover ratio = Cost of Goods Sold / Average Inventory6 = Cost of Goods Sold / ((Beginning Inventory + Ending Inventory) / 2)Cost of Goods Sold = 6 x ((Beginning Inventory + Ending Inventory) / 2)$1.4216 x Number of shares outstanding = 6 x ((Beginning Inventory + $0) / 2)Beginning Inventory = $0.2369 x Number of shares outstandingNow we can calculate the average inventory and the inventory turnover ratio:Average Inventory = ($0.2369 x Number of shares outstanding + $0) / 2Inventory turnover ratio = $1.4216 x Number of shares outstanding / (($0.2369 x Number of shares outstanding + $0) / 2)Inventory turnover ratio = 6.07

Dahn Corporation has provided the following financial data: Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share.Thecompany's inventory turnover for Year 2 is closest to:

A) 6.54
B) 5.67
C) 6.07
D) 0.87

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Dahn Corporation has provided the following financial data: Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share.Thecompany's inventory turnover for Year 2 is closest to:A) 6.54B) 5.67C) 6.07D) 0.87

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Dahn Corporation has provided the following financial data: Dividends on common stock during Year 2 totaled $1,600. The market price of common stock at the end of Year 2 was $2.37 per share.Thecompany's inventory turnover for Year 2 is closest to:

A) 6.54
B) 5.67
C) 6.07
D) 0.87