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UOPX ACC 281 - Understanding Real World Financial Reports

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Running head: FINANCIAL REPORTS 1Understanding Real World Financial ReportsNameACC281: Accounting Concepts for Health Care ProfessionalsUnderstanding Real World Financial ReportsUse the Topps Company’s annual report in Appendix B to answer the following questions.FINANCIAL REPORTS 2A. What was Topps’ inventory turnover ratio and average days to sell inventory for 2006 and2005?B. Is the company’s management of inventory getting better or worse?C. What cost flow method(s) did Topps use to account for inventory?According to Appendix B, the cost of sales for Topps was $198,054 in 2006 and $189,200 in 2005. The total inventory was $36,781 in 2006 and $32,936 in 2005. To find out what the inventory turnover ratio is you need to divide the cost of sales by inventory. In the year 2006 thiswould be $198,054/$36,781which would be 5.38. In the year 2005 this would be $189,200/$32,936 which would be 5.74. The inventory turnover ratio for 2006 is estimated to be5.38. The inventory turnover ratio for 2005 is estimated to be 5.74. To figure out how many days the company had to sell inventory you must divide the turnover ratio by the number of days that are in a year which is 365 days. For the year of 2006 it would be 365/5.38 which will give you 67.84 and for the year 2005 it would be 365/5.74 which will give you 63.58. If you round each equation to a whole number it will give you 68 days in 2006 and 64 days in 2005 for the company to sell their inventory. After doing the equations myself it look like the company is getting worse because it took more days in 2006 to sell inventory then it did in 2005 which means that the inventory department needs more improvement if it want to stay in business. The cost flow methods that Topps’ used to account for inventory are FIFO (first in, first out). They used this method becausethis method “treats the first items purchased as the first items sold for the purpose of computing cost of goods sold. Dealing with perishable products, it is important for Topps to sell its older product first because they need to be sold before it passes the due date on them.FINANCIAL REPORTS 3Reference PageFINANCIAL REPORTS 4Edmonds, T., Olds, P., McNair, F., &Tsay, B. (2010)[email protected] Survey of Accounting (2nd ed.)[email protected] New York: McGraw-Hill

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