USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 2

Question

USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 28 through 30 Sales Gross profit margin Inventory turnover ratio (Cost of goods sold/Inventory) Net profit margin Average collection period Return on equity Accumulated depreciation Return on assets Accounts payable days Notes payable Gross fixed assets Percent of sales on credit (remainder are cash sales) $ 2,000,000 20% 25 4% 45 25% 75,000 12.5 18 $18,000 $400,000 NOTE: Assume a 360 day year for all ratios, etc. Assume that the only accounts on the balance sheet are those listed below. Fill in this chat with the data provided and then answer questions 28, 29 and 30. Cash Accounts receivable Inventory Gross fixed asset Notes payable Accounts payable Long-tem debt Equity Total liab & equty Net fixed assets Total assets 28. Cash= 29, Long-term debt 30. Total assets .

Explanation / Answer

Solution: Cash 51,000 Notes payable 18,000 Accounts receivable 200,000 Accounts payable 80,000 Inventory 64000 Long-term debt 222,000 Gross fixed assets 400,000 Equity 320,000 (Accumulated depreciation) ($75,000) Net fixed assets $325,000 Total assets $640,000 Total liab & equity $640,000 28. Cash = 51,000 29. Long-term debt = 222,000 30. Total assets 640,000 Working Notes: a. from VII. Cash 51,000 Notes payable 18,000 h= given b = From V. Accounts receivable 200,000 Accounts payable 80,000 I = see VIII. c = II. See below Inventory 64000 Long-term debt 222,000 j = see X. d =given Gross fixed assets 400,000 Equity 320,000 k= See IV. Below e= given (Accumulated depreciation) ($75,000) f= d-e Net fixed assets $325,000 g = from VI. Total assets $640,000 Total liab & equity $640,000 L= see IX. 28. Cash = 51,000 see. VII. 29. Long-term debt = 222,000 see X. 30. Total assets 640,000 see VI. Notes: I. Gross profit margin = (Sales - cost of goods sold )/ Sales 20% = ($2,000,000 - cost of goods sold )/ $2,000,000 $400,000 = $2,000,000 - Cost of goods sold Cost of goods sold = $2,000,000 - $400,000 Cost of goods sold = $1,600,000 II. Inventory turnover ratio = Cost of goods sold / Inventory 25 = $1,600,000 / Inventory Inventory = $1,600,000/25 Inventory = $64,000 III. Net profit margin = 4% Net profit margin = Net profit /Sales 4% = Net profit /$2,000,000 Net Profit = $2,000,000 x 4% =$80,000 IV. Return on Equity = Net Income / Book value of Equity 25% = $80,000 / Equity Equity = $80,000/25% Equity= 320,000 V. Average Collection Period = (360 x Accounts receivable)/ (Sales x credit %) 45 = (360 x Accounts receivable)/ ($2,000,000 x 80%) Accounts Receivable = 45 x ($2,000,000 x 80%) /360 Accounts Receivable = 200,000 VI. Return on assets = Net profit / Total Assets 12.5%= $80,000/ Total Assets Total Assets = $80,000/12.5% Total Assets = $640,000 VII. Total assets = cash + Accounts receivable + Inventory + Net fixed assets $640,000 = Cash + 200,000 + 64,000 + 325,000 Cash = $640,000 - 589,000 Cash = $51,000 VIII. Accounts payable days = 18 Accounts payable days = (Accounts Payable / Cost of Goods Sold) x Number of Days In Year 18 = (Accounts Payable / 1,600,000 ) x 360 Accounts payable = 18 x 1,600,000 / 360 Accounts payable = 80,000 IX. Total assets = Total liab & equity as balance sheet must be balanced so they must be equal. Total liab & equity = $640,000 X. Long term debt Total liab & equity = Notes payable + Accounts payable + Long term debt + Equity $640,000 = 18,000 + 80,000 + Long term debt + 320,000 Long term debt = $640,000 - 418,000 Long term debt = $222,000 Please feel free to ask if anything about above solution in comment section of the question.

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