7-2: Liquidity Ratios 7-3: Asset Management Ratios 7-4: Debt Management Ratios 7
ID: 2821082 • Letter: 7
Question
7-2: Liquidity Ratios 7-3: Asset Management Ratios 7-4: Debt Management Ratios 7-5: Profitability Ratios Problem 7-11 Balance Sheet Analysis Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data: Total assets turnover: 1.5 Gross profit margin on sales: (Sales-Cost of goods sold)/Sales 24% Total liabilities-to-assets ratio: 55% Quick ratio: 1.00 Days sales outstanding (based on 365-day year): 38 days Inventory turnover ratio: 3.0 Round your answers to the nearest whole dollar. Partial Income Statement Information Sales Cost of goods sold$ Balance Sheet Cash Accounts receivable Inventories Fixed assets Total assets Accounts payable Long-term debt Common stock Retained earnings Total liabilities and equity s 50,000 $ 100,000 $ 400,000 SExplanation / Answer
Sales
$600000
Cost of goods sold
$456000
Balance Sheet
Cash
$107534
Accounts payable
$170000
Accounts Receivable
$62466
Long-term debt
$50000
Inventories
$152000
Common stock
$80000
Fixed assets
$78000
Retained earnings
$100000
Total assets
$400000
Total liabilities and equity
$400000
Explanation;
1.
Total assets turnover ratio is given = 1.5
Total assets are given = $400000
Thus sales will be ($400000 * 1.5) = $600000
2.
Cost of goods sold will be calculated as follow;
Gross profit margin on sale is given = 24%
Thus gross profit ($600000 * .24) = $144000
Cost of goods sold ($600000 - $144000) = $456000
3.
Accounts payable will be calculated as follow;
Total liability to assets ratio is given = 55%
Total assets are = $400000
Thus, total liability will be ($400000 * 0.55) = $220000
As per question, long-term debt is given = $50000
Thus, accounts payable ($220000 - $50000) = $170000
4.
Common stock will be calculated as follow;
(Total liability and equity – Total liability – Retained earnings)
$400000 - $220000 - $100000) = $80000
5.
Inventory will be calculted as follow;
Inventory turnover ratio is given = 3.0
Cost of goods sold = $456000
Thus, inventory will be ($456000 / 3) = $152000
6.
Accounts receivable will be calculated as follow;
Days sales outstanding is given = 38 days
Days sales outstanding = (Accounts receivable / Net sales) * 365
38 = (Accounts receivable / $600000) * 365
Accounts receivable = 38 * $600000 / 365
Accounts receivable = $62465.75 or $62466 (Approx.)
7.
Cash will be calculated as follow;
Quick ratio is given = 1.00
Current liability = $170000
Thus, quick assets will be ($170000 * 1) = $170000
Cash ($170000 – $62466) = $107534
8.
Fixed assets will be calculated as follow;
Total assets = $400000
Fixed assets ($400000 - $107534 - $62466 - $152000) = $78000
Sales
$600000
Cost of goods sold
$456000
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