Question

4.13

Complete the balance sheet and sales information using the following financial data:

Total assets turnover: 1.2×
Days sales outstanding: 73.0 days^a
Inventory turnover ratio: 5×
Fixed assets turnover: 2.5×
Current ratio: 2.0×
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25%
^aCalculation is based on a 365-day year.

Do not round intermediate calculations. Round your answers to the nearest dollar.

Balance Sheet
Cash	$		Current liabilities	$
Accounts receivable			Long-term debt	42,000
Inventories			Common stock
Fixed assets			Retained earnings	63,000
Total assets	$210,000		Total liabilities and equity	$
Sales	$		Cost of goods sold	$

Answer 1

First we will calculate sales by total assets turnover as per below:

Total assets turnover = Sales / Total assets

Given: Total assets turnover = 1.2, Total assets = $210000

Putting these values in the above equation, we get,

1.2 = Sales / $210000

Sales = $210000 * 1.2 = $252000

Next, we will calculate cost of the goods sold as per below:

Gross Profit margin on sales = Gross Profit / Sales

Given: Sales = $252000, Gross Profit margin = 25%

Putting these values in the above equation, we get,

25 = Gross Profit / $252000

Gross Profit = $252000 * 25% = $63000

Now, Gross Profit = Sales - Cost of the goods sold

$63000 = $252000 - Cost of the goods sold

Cost of the goods sold = $252000 - $63000

Cost of the goods sold = $189000

Next, we will calculate accounts receivable as per below:

Days' sales outstanding = 365 / Accounts receivable turnover

Given: Days' sales outstanding = 73

Putting these values in the above equation, we get,

73 = 365 / Accounts receivables turnover

Accounts receivable turnover = 365 / 73 = 5

Now, accounts receivable can be computed by the following formula,

Accounts receivables turnover = Sales / Accounts receivables

Given: Accounts receivables turnover = 5, Sales = $252000

Putting the values in the above equation, we get,

5 = $252000 / Accounts receivable

Accounts receivable = $252000 / 5 = $50400

Next we will calculate fixed assets by fixed assets turnover as per below:

Fixed assets turnover = Sales / Fixed assets

Given: Fixed assets turnover = 2.5, Sales = $252000

Putting these values in the above equation, we get,

2.5 = $252000 / Fixed assets

Fixed assets = $252000 / 2.5 = $100800

Next we will calculate inventory by inventory turnover as per below:

Inventory turnover = Cost of the goods sold / Inventory

Given: Inventory turnover = 5, Cost of the goods sold = $189000 (as calculated in previous steps)

Putting these values in the above equation, we get,

5 = $189000 / Inventory

Inventory = $189000 / 5 = $37800

Next we will calculate cash as per below:

Total Assets = Fixed Assets + Current assets

Given: Total assets = $210000, Fixed assets = $100800 (as calculated in previous steps)

$210000 = $100800 + Current assets

Current assets = $210000 - $100800 = $109200

Now,

Current assets = Cash + Inventory + Accounts receivable

Given: Current assets = $109200 (as calculated in previous steps), Accounts receivable = $50400 (as calculated in previous steps), Inventory = $37800(as calculated in previous steps)

Putting these values in the above equation, we get,

$109200 = Cash + $37800 + $50400

$109200 = Cash + $88200

Cash = $109200 - $88200

Cash = $21000

Next we will calculate current liabilities by current ratio as per below:

Current ratio = Current assets / Current liabilities

Given: Current ratio = 2, Current assets = $109200 (as calculated in previous steps)

Putting these values in the above equation, we get,

2 = $109200 / Current liabilities

Current liabilities = $109200 / 2

Current liabilities = $54600

Next we will calculate total liabilities & equity:

Total liabilities & equity = Total assets

Given: Total assets = $210000

So, Total liabilities & equity = $210000

Next,we will calculate common stock as per below:

Total liabilities & equity = Current liabilities + Long term debt + Common stock + Retained earnings

Putting these values in the above equation, we get,

$210000 = $54600 + $42000 + Common stock + $63000

$210000 = Common stock + $159600

Common stock = $50400

Balance sheet

Current assets:

Cash $21000

Accounts receivable $50400

Inventory $37800

Total current assets $109200

Non Current assets:

Fixed Assets    $100800

Total Non current assets $100800

Total Assets $210000

Liabilities:

Current Liabilities $54600

Total current liabilities $54600

Non Current liabilities:

Long term debt   $42000

Total non current liabilities $42000

Stockholder's equity:

Common stock $50400

Retained Earnings $63000

Total stockholder's equity $113400

Total liabilities & stockholder's equity $210000