Exercise 13-12 Indigo Corporation experienced a fire on December 31, 2017, in wh
ID: 2596227 • Letter: E
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Exercise 13-12 Indigo Corporation experienced a fire on December 31, 2017, in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances. December 31, 2017 $ 40,200 December 31, 2016 $ 11,100 76,400 132,300 Cash Accounts receivable (net) Inventory Accounts payable Notes payable Common stock, $100 par Retained earnings 205,100 52,200 38,600 185,400 89,900 60,700 410,800 410,800 121,600 110,300 Additional information: 1. The inventory turnover is 4.7 times. 2. The return on common stockholders' equity is 18%. The company had no additional paid-in capital. 3. The receivables turnover is 12.5 times. 4. The return on assets is 19%. 5. Total assets at December 31, 2016, were $612,500. Compute the following for Indigo Corporation. (Round all answers to 0 decimal place, e.g. 2,150.)Explanation / Answer
1) Inventory turnover ratio = Cost of Goods Sold divided by average inventory
Average inventory = (205,100 + 185,400) divided by 2 = 195,250.
COGS = Average inventory multiplied with Inventory turnover ratio = 195,250 muliplied by 4.7 = $917,675
2) Receivables turnover ratio = Net sales divided by average accounts receivable
Net sales = Average accounts receivable multiplied by receivables turnover ratio = 104,350 multiplied by 12.5 = $1,304,375
Average accounts receivable = (76,400 + 132,300) divided by 2 = 104,350
3) Return on shareholders' equity = Net income divided by shareholders' equity
Net income = Shareholders' equity multiplied by return on shareholders' ratio = $526,750 multiplied by 18% = $94,815.
Average shareholders' equity = (410,800 +121,600 + 410,800 + 110,300) divided by 2 = $526,750
4) Return on assets ratio = Net income divided by average total assets
Average total assets = Net income divided by return on assets ratio = $94,815 divided by 19%
=$ 499,026
Total assets for 2 years = 499,026 multiplied with 2 = $998,053
Total Assets as at December 31, 2017 = Total assets less assets at December 31, 2016 = $998,053 - 612500 = $385,553.
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