Exercise 14-12 Panza Corporation experienced a fire on December 31, 2020, in whi

Question

Exercise 14-12 Panza Corporation experienced a fire on December 31, 2020, in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances Cash Accounts receivable (net) Inventory Accounts payable Notes payable Common stock, $100 par Retained earnings December 31, 2020 $27,000 70,000 209,000 45,500 34,000 386,000 105,000 December 31, 2019 $ 11,500 121,500 188,000 89,500 59,500 386,000 106,500 Additional information: 1. 2. 3. 4. 5. The inventory turnover is 3.0 times The return on common stockholders' equity is 28%. The company had no additional paid-in capital The accounts receivable turnover is 7.7 times The return on assets is 12.5% Total assets at December 31, 2019, were $606,000

Explanation / Answer

a) Inventory turnover = Cost of goods sold/Average inventory

Average inventory = (209000+188000/2) = 198500

Cost of goods sold = 198500*3 = $595500

b) Account receivable turnover = Net credit sales/Average receivables

Average receivables = (70000+121500/2) = 95750

Net credit Sales = 95750*7.7 = $737275

c) Return on common Stockholder's equity = Net income*100/Average stockholder's equity

Average stockholder's equity = (386000+386000+105000+106500/2) = 491750

Net income = 491750*28% = $137690

d) Return on total assets = Net income*100/Average assets

0.125 = 137690/X

Average assets = $1101520

Total assets at december 31,2020 = (1101520*2-606000) = $1597040

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