Question

Swift Inc Company, all information about 2019, prepare a balance sheet for Swift Inc. as of December 31, 2019.

• Retained earnings at December 31, 2018is $234,000
• Sales (all credit sales) are $2.5 million
• Days to sell inventory is 20
• Cash on hand is 1% of sales
• All sales are paid 30 days after purchase
• Noncurrent assets are $1 million
• Long-term debt to equity ratio is 1
• All liabilities, other than long-term debt, are short-term liabilities
• 20,000 shares outstanding issued at $10 in 2004
• No dividends are paid
• Gross margin is 40%
• Net profit margin is 8%
• Assume there are 360 days in the year

Answer 1

To prepare balance sheet we need to find out components of liabilities side and assets side

Liabilities:

Share capital = 20,000× 10

= 200,000

Retained earnings as on 31st Dec 2019

= Opening balance + current year net profit

= 234,000 + ( 2,500,000×8%)

= 434,000

Long term debt will be equal to equity as it is given their ratio is 1

So long term debt will be

= Equity

= Shareholders funds + retained earnings

= 200,000+434,00

= 634,000

Short term liabilities will be balancing figure.

Assets:

Non current assets =1,000,000

Debtors : it is given that debtors will pay amount after 30 days.so assuming sales happened evenly throughout the year ,at the end of year there is last 30 days sales related debtors that has to pay.

So debtors will be = 2,500,000×30/360

= 208,333

Cash will be = 2,500,000×1%

= 25,000

Closing stock can be found as below

Days to sell inventory is given by

= (Closing stock/cost of goods sold)× 365

( Closing stock/ sales×60% )×365= 20

(Closing stock /1,500,000) = 20/365

Closing stock = 82,192

Total assets will be = 1,315,525

Now we can find out short term liabilities as balancing figure as assets and liabilities total must tally in a balance sheet.

Short term liabilities = 1,315,525-1,268,000

= 47,525

Now balance sheet will be like this