Question

​(Proforma balance sheet construction​)Use the following​ industry-average ratios to construct a pro forma balance sheet for​ Karen's Beauty​ Products, Inc

Total asset turnover 1.5 times

Average collection period (assume 365-day year) 16 days

Fixed asset turnover 6 times

Inventory turnover (based on cost of goods sold) 2 times

Current ratio 1.8 times

Sales (all on credit) 3,000,000

Cost of goods sold 75% of sales

Debt ratio 50%

Fill in the assets section of the pro forma balance sheet.  ​(Round all items to the nearest​ dollar.)

Cash	​$nothing
Accounts receivable	nothing
Inventories	nothing
Net fixed assets	nothing
Total assets	​$nothing

Answer 1

Cash		$243,493	working note : 5
Accounts receivable		$131,507	working note : 1
Inventories		$1,125,000	working note : 2
Net fixed assets		$500,000	working note : 3
Total assets		$2,000,000	working note : 4
Given,
Total asset turnover 1.5 times
Average collection period (assume 365-day year) 16 days
Fixed asset turnover 6 times
Inventory turnover (based on cost of goods sold) 2 times
Current ratio 1.8 times
Sales (all on credit) 3,000,000
Cost of goods sold 75% of sales = 75% of $3,000,000 = $2,250,000
Debt ratio 50%
Working Note : 1
Average collection period (assume 365-day year) 16 days
or, Average collection period = 365 Days / Accounts receivable turnover ratio
or, 16 Days = 365 Days / Accounts receivable turnover ratio
or, Accounts receivable turnover ratio = 365 Days / 16 Days
or, Accounts receivable turnover ratio = 22.8125
Now,
By applying account receivable turnover ratio formula, calculate account receivable
Accounts receivable turnover ratio = Net credit sales / Average accounts receivable
or, 22.8125 = $3,000,000 / Average accounts receivable
or, Average accounts receivable = $3,000,000 / 22.8125
or, Average accounts receivable = $131,507
Working Note : 2
Given inventory turnover ratio is 2 times
Now, By applying Inventory turnover ratio formula, calculate average inventory
Inventory turnover ratio = Cost of goods sold / Average inventories
or, 2 = $2,250,000 / Average inventories
or, Average inventories = $2,250,000 / 2
or, Average inventories = $1,125,000
Working Note : 3
Given fixed asset turnover is 6 times
Now, By applying fixed asset turnover ratio formula, calculate net fixed assets
Fixed asset turnover = Net Sales / Average fixed assets
or, 6 = $3,000,000 / Average fixed assets
or, Average fixed assets = $3,000,000 / 6
or, Average fixed assets = $500,000
Working Note : 4
Given total asset turnover 1.5 times
Now, By applying total asset turnover ratio formula, calculate total assets
Total asset turnover = Net Sales / Total assets
or, 1.5 = $3,000,000 / Total assets
or, Total assets = $3,000,000 / 1.5
or, Total assets = $2,000,000
Working Note : 5
Cash is calculated as balancing figure
Cash = Total assets -fixed assets - inventory - accounts receivable
Cash = 2,000,000-500,000-1,125,000-131,507
Cash = $243,493