The following ratios have beenc om puted for Piper Company for 2012. 24% 50% Pro
ID: 2408467 • Letter: T
Question
The following ratios have beenc om puted for Piper Company for 2012. 24% 50% Profit margin ratio20% Debt ratio Gross Profit Margin ratio The 2012 financial statements for Piper Company with missing information follows: Current ratio 2.5 PIPER COMPANY Comparative Balance Sheet December 3 Assets 2012 2011 Cash Marketable securities Accounts receivable (net) Inventory Property, plant, and equipment (net) S 25,000 15,000 30,000 S 35,000 15,000 50,000 50,000 160,000 S(8) S310,000 ? (7) 200,000 Total assets Liabilities and stockholders Accounts payable Short-term notes payable Bonds payable Common stock Retained earnings S 25,000 15,000 35,000 30,000 ?(10) 200,000 47,000 20,000 200,000 35,000 9) 310000 Total liabilities and stockholders' equity PIPER COMPANY Income Statement For the Year Ended December 31, 2012 Net sales $200,000 Cost of goods sold Expenses: Depreciation expense Interest expense Selling expenses Administrative expenses 5,000 10,000 Total expenses ? (2) 15000 Income before income taxes Income tax expense Net income Required Use the above ratios and information from the Piper Company financial statements to fill in the missing information on the financial statements. Follow the sequence indicated. Show computations that support your answerS.Explanation / Answer
(1) Profit margin ratio = 20%
Hence, net income = 200,000 x 20%
= $40,000
(2) Income before income tax = Net income + Income tax expense
= 40,000 + 15,000
= $ 55,000
(3) Gross profit margin ratio = 50%
Hence, gross profit = 200,000 x 50%
= $100,000
(4) Cost of goods sold = Net sales - Gross profit
= 200,000 - 100,000
= $100,000
(5) Income before income tax = Gross profit - Total expenses
55,000 = 100,000 - Total expenses
Hence, total expenses = 100,000 - 55,000
= $45,000
(6) Total expenses = Depreciation expense + Interest expense + Selling expense + Administrative expense
45,000 = Depreciation expense + 5,000 + 10,000 + 15,000
Hence, Depreciation expense = 45,000 - 30,000
= $15,000
(7) Current ratio = Current assets/Current liabilities
2.5 = Current assets/50,000
Hence, current assets = $125,000
Current assets = Cash + Marketable securities + Accounts receivable + Inventory
125,000 = 25,000 + 15,000 + 30,000 + Inventory
Inventory = 125,000 - 70,000
= $55,000
(8) Total assets = Current assets + Property, plant and equipment
= 125,000 + 200,000
= $325,000
(9) Total liabilities and stockholders' equity = Total assets
= $325,000
(10) Total liabilities and stockholders' equity = Accounts payable + Short term notes payable + Bonds payable + Common stock + Retained earnings
325,000 = 15,000 + 35,000 + Bonds payable + 200,000 + 47,000
Hence, Bonds payable = 325,000 - 297,000
= $28,000
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