Running head FINANCIAL REPORTS 1 Understanding Real World Financial Reports Name ACC281 Accounting Concepts for Health Care Professionals Understanding Real World Financial Reports Use the Topps Company s annual report in Appendix B to answer the following questions FINANCIAL REPORTS 2 and2005 A What was Topps inventory turnover ratio and average days to sell inventory for 2006 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 this would 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 be 5 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 because this 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 3 Reference Page FINANCIAL REPORTS 4 York McGraw Hill Irwin Edmonds T Olds P McNair F Tsay B 2010 Survey of Accounting 2nd ed New
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