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4-21. BALANCE SHEET ANALYSIS - Complete the balance sheet and sales information using the following financial data:
Debt-to-assets ratio: 50%
Current ratio: 1.8x
Total assets turnover: 1.5x
Days sales outstanding: 36.5 daysa
Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 25%
Inventory turnover ratio: 5x
aCalculation is based on a 365-day year.
Balance Sheet
Cash ---------- Accounts payable ----------
Accounts receivable ---------- Long-term debt $60,000
Inventories ---------- Common stock ----------
Fixed assets ---------- Retained Earnings $97,500
Total assets $300,000 Total Liabilities and equity ----------
Sales ---------- Cost of goods sold ----------

Explanation / Answer

1

50%

2

1.5

3

25%

4

5

5

36.5

6

300000

180000

7

1.8

300000

300000

Given Data: Long term debt $60,000 Retained earnings $97,500 Total assets $300,000
Working Note:

1

Debt to assets ratio = 50% Debt to assets ratio = Total long term debt /Fixed Assets

50%

= 60000/Assets Fixed assets = $120,000

2

Total assets turnover = Sales / Assets

1.5

= Sales / 300000 Sales = $450,000

3

Gross profit margin = Gross profit / sales

25%

= Gross profit / 450000 Gross profit = $112,500 Cost of goods sold = Sales - Gross profit = 450000 - 112500 Cost of goods sold = $337,500

4

Inventory turnover ratio = Cost of goods sold / Average inventory

5

= 337500 / Average inventory Average inventory = $67,500

5

Days sales outstanding = Receivables / Sales * Days in period

36.5

= Receivables / 450000*365 Receivables = 450000*36.5/365 Receivables = $45,000

6

Total assets = Fixed assets + Current assets

300000

= 120000 + Current assets Current assets = $180000 Current assets = Inventory + Receivable+Cash

180000

= 67500 + 45000 + Cash Cash = $67,500

7

Current ratio = 1.8 Current ratio = Current assets / Current liabilities

1.8

= 180000 / Current liabilities Current liabilities = $100,000 Total assets = Total liabilities & Equity

300000

= Total liabilities & Equity

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