The following information was taken from Baxter Department Store's financial statements:

Inventory on January 1 $ 100,000

Inventory on December 31 300,000

Net sales 2,000,000

Net purchases 700,000

What was Baxter's inventory turnover for the year ending December 31?

A. 2.5

B. 3.5

C. 5

D. 10

500,000: 200,000 = 2.5

Explanation:

inventory turnover is calculated as

cost of goods sold : Average inventory

From the information of Baxter department store's financial statement, cost of goods sold can be calculated as

Opening inventory + purchases - closing inventory

100,000 + 700,000 - 300,000 = 500,000

cost of goods sold = 500,000

Average stock is calculated as opening inventory + closing inventory : 2

100,000 + 300,000 : 2 = 200,000

Average inventory = 200,000

Therefore inventory turnover = 500,000: 200,000 = 2.5