Solomon company reports the following in its most recent year of operations: sales, $1,000,000 (all on account) cost of goods sold, $490,000 gross profit, $510,000 accounts receivable, beginning of year, $110,000 accounts receivable, end of year, $140,000 merchandise inventory, beginning of year, $55,000 merchandise inventory, end of year, $60,000. based on these balances, compute: the accounts receivable turnover. the inventory turnover.

Accounts receivable turnover = 8 times

Inventory turnover = 8.5 times

Explanation:

The computations are shown below:

1. Accounts receivable turnover ratio:  

= Credit sales ÷ average accounts receivable

where,  

Average accounts receivable = (Opening balance of Accounts receivable + ending balance of Accounts receivable) ÷ 2

= ($110,000 + $140,000) ÷ 2

= $125,000

And, the net credit sale is $1,000,000

Now put these values to the above formula  

So, the answer would be equal to  

= $1,000,000 ÷ $125,000

= 8 times

2. Inventory turnover ratio:

= Cost of goods sold ÷ average inventory

where,  

Average inventory = (Opening balance of inventory + ending balance of inventory) ÷ 2

= ($55,000 + $60,000) ÷ 2

= $57,500

And, the cost of good sold is $490,000

Now put these values to the above formula  

So, the answer would be equal to  

= $490,000 ÷ $57,500

= 8.5 times

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