Financial Management Chapter 3 Financial Analysis 85 34.) We are given the follo

Question

Financial Management Chapter 3 Financial Analysis 85 34.) We are given the following information for the Pettit Corporation. Using ratios to determine account balances (LO2) Sales (credit) $3,000,000 150,000 850,000 700,000 Current liabilities... 2.50 times 40% 6 times Debt-to-assets ratio. Current assets are composed of cash, marketable securities, accounts receivable, and inventory. Calculate the following balance sheet items. a. Accounts receivable. b. Marketable securities. c. Fixed assets. d. Long-term debt. 35. The following information is from Harrelson Inc.'s financial statements. Sales Using ratios to (ail creait) were $20 unmon o 20i0. statements (LO2)

Explanation / Answer

a. Calculation of Accounts Receivables:

Given that :

Receivables turnover = 6 times

Receivables turnover = Net Credit Sales / Accounts Receivables

6 = 3,000,000 / Accounts Receivables

Hence , Accounts Receivables = 3,000,000 /6 = 500,000

b. Calculation of Marketable Securities:

Marketable Securities = Total Current Assets - Cash – Accounts Receivables – Inventory

Total Current assets = Current Liabilities * Current ratio

=$700,000*2.5 = $1750,000

Hence , Marketable Securities = 1750000 -150000-500000-850000 = $250000

C. Calculation of Fixed Assets :

Fixed Assets = Total Assets – Current Assets

Total Assets = Sales /Assets turnover

= 3,000,000 / 1.25

= $2400,000

Hence , Fixed Assets = = 2400000-1750000 = $650000

d. Calculation of Long term debt:

Total Liabilities   = Total Assets * Debt to total assets ratio

= 2400000 * 40%

=$960000

Long term Debt = Total Liabilities – Current liabilities

= 960000 – 700000

= $260000

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