Exercise 16-34 Profitability Ratios Bryce Company manufactures pet supplies. How
ID: 2424845 • Letter: E
Question
Exercise 16-34 Profitability Ratios Bryce Company manufactures pet supplies. However, Bryce’s electronic accounting system recently crashed and, unfortunately, only a partial recovery of the company’s year-end accounting records (which included several profitability ratios) was possible. As a result, Bryce’s controller, a bright young CMA named Jeanette, must compute various lost financial account balances using the recovered information listed below: Long-term liabilities: $1,500,000 Ending inventory is the same as beginning inventory. Gross margin: $3,000,000 Net sales: $8,000,000 Accounts receivable turnover: 50 Ending accounts receivable is the same as beginning accounts receivable. Total liabilities: $2,000,000 Current ratio: 2.5 Cash: $600,000 Quick ratio: 2.0 Inventory turnover in days: 3.65 Required: 1.Calculate current liabilities. 2.Calculate current assets. 3.Calculate average accounts receivable 4.Calculate marketable securities. 5.Calculate average inventory.
Explanation / Answer
Total liabilities: $2,000,000
Current Liablities=Total Liabilities-Long Term Liabilities
=$2,000,000-$1,500,000=$500,000
2.
Current Ratio= Current Assets/Current Liabilities
2.5 =Current assets/$500,000
Current assets=$500,000 x 2.5=$1,250,000
3.Accounts receivable turnover=Net sales/[ beg Accounts Receivable + end Accounts receivable/2]
=Net sales/ Receivable
50 =$8,000,000/ Accounts Receivable
Accounts Receivable=$8,000,000/50=$160,000
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4.Quick ratio= Quick assets/ Current liabilities
= Cash+ Receivables+ Marketable securities/ current liabilities
2=$600,000+$160,000+ Marketable securities/$500,000
2=$760,000+ Marketable securities/$500,000
2x $500,000=$760,000+ Marketable securities
$1,000,000=$760,000+ Marketable securities
Marketable securities=$1,000,000-$760,000
=$240,000
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5.
Cost of Goods Sold= Net sales- Gross Profit=
=8,000,000-$3,000,000=$5,000,000
Inventory turnover in days=365/Inventory turover
3.65/.365/inventory turnover
Inventory turnover=365/3.65=100
Inventory Turnover ratio= Cost of Goods sold/ Avg inventory
100 =$5,000,000/ Avg inventory
Avg inventory=$5,000,000/100
Inventory= $50,000
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