Presented below is an incomplete income statement and an incomplete comparative

Question

Presented below is an incomplete income statement and an incomplete comparative balance sheet of Bondi Corporation. Additional information: The accounts receivable turnover for 2014 is 10 times. All sales are on account. The profit margin for 2014 is 14.5%. Return on assets is 20% for 2014. The current ratio on December 31, 2014, is 3. The inventory turnover for 2014 is 4.2 times. Compute the missing information given the ratios above. (Note: Start with one ratio and derive as much information as possible from it before trying another ratio. List all missing amounts under the ratio used to find the information.)

Explanation / Answer

1) The accounts receivables turnover for 2014 is 10 times = Net Sales / Average Receivables

10 times = $ 13,860,000 / Average Receivables

so Average Receivables = 13,860,000/10 = $ 1,386,00

2) Proft Margin (14.5 %) = (Net Income / Net Sales) * 100

14.5 % = (Net Income / 13,860,000) * 100

Net Income = $ 2,009,700

3)Income Before Taxes = Net Income + Income Tax Expenses

= 2,009,700 + 726,000

Income Before Taxes = $ 2,735,700

4) Current Ratio (3) = Current Assest/ Current Liabilites

3 = Current Asset / $ 1,089,000

Current Assets = $ 3,267,000

5) Current Assets ( 3,267,000) = Cash + Receivables + Inventory

Inventory = Curent Assets - (Cash +Receivables)

Inventory = 3,267,000 - (633600+1254000) = $ 1,379,400

6) Inventory Turnover (4.2 times ) = Cost of Goods Sold / Average Stock

4.2 = Cost of Goods Sold / 1379400

Cost of Goods = $ 5,793,480

7) Gross profit = sales - Cost of Goods

= 13,860,000 - 5793480

Gross Profit = $ 8,066,520

8)Income from Operation = Gross Profit - Operating Expenses

= 8,066,520 - 1,980,000

Income from Operation = $ 6,086,520

9) Interest Expenses = Income form Operations - Income before Income tax

= 6,086,520- 2,735,700

Interest Expenses = $ 3,350,820

Income Statement

Balance Sheet

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Sales 13,860,000 Cost of goods sold 5,793,480 Gross profit 8,066,520 Operating expenses 1,980,000 Income from operations 6,086,520 Other expenses and losses Interest expense 3,350,820 Income before income taxes 2,735,700 Income tax expense 726,000 Net income $ 2,009,700

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