Rees Corporation experienced a fire onDecember 31, 2009, in which its financial
ID: 2433556 • Letter: R
Question
Rees Corporation experienced a fire onDecember 31, 2009, in which its financial
records were partially destroyed. It has beenable to salvage some of the records and hasascertained
the following balances.
December 31,2009 December 31, 2008
Cash $ 30,000 $ 10,000
Receivables (net) 72,500126,000
Inventory 200,000 180,000
Accounts payable 50,00090,000
Notes payable 30,000 60,000
Common stock, $100 par 400,000400,000
Retained earnings 113,500101,000
Additional information:
1. The inventoryturnover is 3.5 times.
2. The return oncommon stockholders’ equity is 24%. The company had noadditional paid-in
capital.
3. Thereceivables turnover is 8.8 times.
4. The return onassets is 20%.
5. Total assetsat December 31, 2008, were $605,000.
734 Chapter 15Financial Statement Analysis
Computeselected ratios.
(SO 5)
Computeamounts from ratios.
(SO 5)
Instructions
Compute the following for ReesCorporation.
(a) Cost of goodssold for 2009.
(b) Net sales(credit) for 2009.
(c) Net incomefor 2009.
(d) Total assetsat December 31, 2009.
Explanation / Answer
(a) Inventory Turnover Ratio = [Cost of Goods Sold /Average Inventory] 3.5 =[Cost of Goods Sold / $190,000] Average Inventory = [(Beginning Inventory + Ending Inventory) /2] Average Inventory = [($180,000 + $200,000) / 2] Average Inventory = $190,000 Costof Goods Sold = [$190,000 * 3.5] Cost of Goods Sold = $665,000 (b) Accounts Receivable Turnover = [Net Sales / Average AccountsReceivables] 8.8 = [Net Sales /$99,250] Net Sales (Credit) =[$99,250 * 8.8] Net Sales(credit) = $873,400 Average AccountsReceivables = [Beginning Receivables + Ending Receivales] /2 Average AccountsReceivables = [($126,000 + $72,500) / 2] Average AccountsReceivables = $99,250 (c ) [Net Sales - Cost of Goods Sold] = Net Income [$873,400 -$665,000] = $208,400 NetIncome = $208,400 (d) Return on Assets = [NetIncome / Total Assets 20% =[$208,400 / Total Assets] 0.20 =$208,400 / Total Assets] TotalAssets = [$208,400 / 0.20] Total Assets = $1,042,000 (a) Inventory Turnover Ratio = [Cost of Goods Sold /Average Inventory] 3.5 =[Cost of Goods Sold / $190,000] Average Inventory = [(Beginning Inventory + Ending Inventory) /2] Average Inventory = [($180,000 + $200,000) / 2] Average Inventory = $190,000 Costof Goods Sold = [$190,000 * 3.5] Cost of Goods Sold = $665,000 (b) Accounts Receivable Turnover = [Net Sales / Average AccountsReceivables] 8.8 = [Net Sales /$99,250] Net Sales (Credit) =[$99,250 * 8.8] Net Sales(credit) = $873,400 Average AccountsReceivables = [Beginning Receivables + Ending Receivales] /2 Average AccountsReceivables = [($126,000 + $72,500) / 2] Average AccountsReceivables = $99,250 (c ) [Net Sales - Cost of Goods Sold] = Net Income [$873,400 -$665,000] = $208,400 NetIncome = $208,400 (d) Return on Assets = [NetIncome / Total Assets 20% =[$208,400 / Total Assets] 0.20 =$208,400 / Total Assets] TotalAssets = [$208,400 / 0.20] Total Assets = $1,042,000Related Questions
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