Rainsoft Company Selected Data from the Financial Statements Are Provided

question 106

Multiple Choice

Rainsoft Company Selected data from the financial statements are provided below:
$\begin{array}{llc}& \underline { 2015 }& \underline { 2014 }& \underline {2013 }\\ \text { Cash } &\$ 44,000 & \$ 28,000 & \$ 14,000 \\ \text { AccountsReceivable } &84,000 & 32,000 & 114,400 \\ \text { Inventory } &44,000 & 166,000 & 100,000 \\ \text {Prepaid Expenses } &\underline {46,000} & \underline {36,000} & \underline {41.600}\\ \text { Total Curent Assets } &\$ 218,000 & \$ 262,000 & \$ 270,000\\\\ \text { Total Current Liabilities } &\$ 130,000 & \$ 144,000 \\ \text { Net Credit Sales } &442,000 & 652,000 \\ \text { Cost of Goods Sold } &336,000 & 598,000 \\ \text { Net Cash Flows from Operating Activities } &32,000 & 58,000\end{array}$
-Refer to Rainsoft Company.Assume that competitors in the industry have an average inventory turnover ratio of 20.8 times in 2015.Rainsoft's inventory turnover ratio for 2015 indicates that the company

• A)has too little inventory on hand at the end of 2015.
• B)is pricing its products too low.
• C)is selling its inventory much more quickly than the industry average.
• D)may have obsolete inventory or problems with sales.

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Definitions:

Accumulating Debt

The process of increasing debt through borrowing or the accumulation of interest on existing loans.

Corporation

A business organization that is a separate legal entity from its owners, the shareholders.

Tax Advantages

Financial benefits that arise from the application of tax laws, such as deductions or credits, which reduce tax liability.

Shareholders

Individuals or entities that legally own one or more shares of stock in a public or private corporation.