You are given the balance sheet and sales information for Hoffmeister Industries
ID: 2718449 • Letter: Y
Question
You are given the balance sheet and sales information for Hoffmeister Industries:
Cash ? Accounts payable? Accounts receivable? Long-term debt 120,000 Inventories ? Common stock ? Fixed assets ?Retained earnings 195,000 Total assets $600,000 Total liabilities ? and equity Sales Cost of Goods Sold (COGS)
• Debt ratio: 50% • Quick ratio: 0.80 • Total assets turnover: 1.5 • DSO (Days sales outstanding): 36.5 (based on 365 days) • Gross profit margin on sales (Sales – COGS)/Sales = 25% • Inventory turnover ratio: 5.0
Total debt = a. 250,000 b. 290,000 c. 420,000 d. 300,000 e. None of the above
Accounts payable = a. 180,000 b. 220,000 c. 230,000 d. 250,000 e. None of the above
Common stock = a. 100,000 b. 105,000 c. 110,000 d. 115,000 e. None of the above
Sales = a. 700,000 b. 750,000 c. 800,000 d. 900,000 e. None of the above
Accounts receivable = a. 70,000 b. 80,000 c. 85,000 d. 95,000 e. None of the above
Inventory = a. 145,000 b. 139,000 c. 135,000 d. 142,000 e. None of the above
Cash + A/R = a. 52,000 b. 54,000 c. 56,000 d. 57,000 e. None of the above
Fixed assets = a. 270,000 b. 276,000 c. 279,000 d. 280,000 e. None of the above
The C.O.G.S. (cost of goods sold) = a. 650,000 b. 660,000 c. 675,000 d. 690,000 e. None of the above
Explanation / Answer
Debt ratio (Debt to total assets) = 50%
Total assets = $ 600,000
Debt = $ 600,000 * 50% = $ 300,000
Therefore, option d is correct answer
Total assets turnover = Sales/Total assets
Sales = 1.5* $600,000 = $ 900,000
Therefore, option d is correct answer.
Gross margin on sales = 25%
(Sales - COGS)/Sales = 0.25
COGS = $ 900,000 - (0.25*$900,000) = $ 675,000
Therefore, option c is correct.
Inventory turnover ratio = COGS/Inventory
Inventory = $ 675,000/1.5 = $ 135,000
Therefore, option c is correct.
Common stock = Total assets - Total liabilities - Retained earnings
= $ 600,000- $ 300,000 - $ 195000 = $ 105,000
Therefore, option is b correct.
Quick ratio = quick assets (ccash and accounts receivable)/Current liabilities
Cash and accounts receivable = 0.8* $300,000 - $ 120,000
= $ 144,0000
Therefore, option e is correct
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