Use the following industry average ratios to construct a pro forma balance sheet

Question

Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc.

Total asset turnover - 1.6 times
Average collection period (assume a 365-day year) - 8.8 days
Fixed asset turnover - 5.1 times
Inventory turnover (based on cost of goods sold) - 3.2 times
Current ratio - 1.8 times
Sales (all on credit) - $4.26 million
Cost of goods sold - 70% of sales
Debt ratio - 47%

1. The company's total assets are $___________(round to the nearest dollar)

2. The company's fixed assets are $___________(round to the nearest dollar)

3. The company'saccounts recievable is $___________(round to the nearest dollar)

4. The company's inventories are $___________(round to the nearest dollar)

5. The company's current liabities are $___________(round to the nearest dollar)

6. The company's total liabilities are $___________(round to the nearest dollar)

7. Pro Forma Balance Sheet

Cash _____ Current liabilities _____
Inventory _____ Long-term debt _____
Accounts receivable _____ Common stock plus _____
Net fixed assets _____ Retained earnings _____
Total $ _____ Total $ _____

Explanation / Answer

Answer:1. Total asset turnover= Sales/Total Assest

1.6 times=4.26 million/Total assest

Total assest=4260000/1.6

=2662500

Answer:2 Fixed asset turnover=Sales/Fixed asset

5.1 times =4260000/Fixed asset

Fixed asset=835294.12

Answer:3 DTR=365 days/Average collection days

=365/8.8days

=41.48 times

DTR=Credit sales/Average debtors

Average Debtor=4260000/41.48

=102700.096

Answer:4 ITR=Cost of goods sold/ Average inventory

3.2 times=2982000/Average inventory

Average inventory=931875

Answer:5 Current ratio= current asset/current liabilities

1.8 times=1827205.88/Current liabilities

Current liabilities=1015114.38

Answer:6 Debt ratio= Total liabilities/Total asset

0.47*2662500=Total liabilities

Total liabilities=1251375

Answer:7 Balance sheet

Asset Amount ($) Liabilities Amount ($) Cash 792630.784 Current liabilities 1015114.38 Inventory 931875 Long term debt 236260.62 Accounts receivable 102700.096 Common stockPlus retained earnings 1411125 Net FA 835294.12 Total 2662500 Total 2662500

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