Thompson TV and Appliance reported the following in its 2021 financial statements:
2021
Sales $ 420,000
Cost of goods sold:
Inventory, January 1 82,000
Net purchases 340,000
Goods available for sale 422,000
Inventory, December 31 86,000
Cost of goods sold 336,000
Gross profit $ 84,000
Thompson's 2021 gross profit ratio is:.
a. 3.91
b. 4.00.
c. 4.88
d. 5.00

Gross profit ratio= 20; inventory turnover ratio= 4.00.

Explanation:

Given option in the question are incorrect for gross profit ratio as option given are for Inventory turnover ratio.

Given: Net sales= $420000.

          Cost of goods sold= $336000

           Gross profit= $84000

Now, claculating the gross profit ratio.

Formula; Gross profit ratio=

⇒ Gross profit ratio=

∴  Gross profit ratio= 20

Now, finding the Inventory turn over ratio.

Formula;

Average inventory=

⇒ Average inventory=

∴ Average inventory=

Next,

⇒

Hence, Gross profit is 20 and inventory turnover ratio is 4.00

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