In: Accounting
The December 31, Year 4, balance sheet for Rundle Corporation is
presented here. These are the only accounts on Rundle’s balance
sheet. Amounts indicated by question marks (?) can be calculated
using the following additional information:
RUNDLE CORPORATION Balance Sheet As of December 31, Year 4 |
|||
Assets | |||
Cash | $ | 33,000 | |
Accounts receivable (net) | ? | ||
Inventory | ? | ||
Property, plant, and equipment (net) | 301,000 | ||
$ | 420,000 | ||
Liabilities and Stockholders’ Equity | |||
Accounts payable (trade) | $ | ? | |
Income taxes payable (current) | 33,000 | ||
Long-term debt | ? | ||
Common stock | 307,000 | ||
Retained earnings | ? | ||
$ | ? | ||
Additional Information | |||
Current ratio (at year end) | 1.6 to 1.0 | ||
Total liabilities ÷ Total stockholders’ equity | 60 | % | |
Gross margin percentage | 30 | % | |
Inventory turnover (Cost of goods sold ÷ Ending inventory) | 12.5 | times | |
Gross margin for Year 4 | $ | 315,000 | |
Required
a. Compute the balance in trade accounts payable
as of December 31, Year 4.
b. Compute the balance in retained earnings as of
December 31, Year 4.
c. Compute the balance in the inventory account as
of December 31, Year 4. (Assume that the level of inventory did not
change from last year.)
Working:
1)Calculation of sales and cost of goods sold:
sales =Gross margin $ /Gross margin %
= 315000 /30%
= $ 1,050,000
Cost of goods sold = Sales [1-gross margin%]
= 1,050,000 [1-.30]
= 1,050,000*.70
= 735000
Inventory turnover ratio =Cost of goods sold /Inventory
12.5 = 735000/Inventory
Inventory = 735000/12.5
= 58800
Total current asset =Total asset - plant property and equipment
=420000- 301000
= 119000
a)current ratio =current asset/current liabilities
1.6 = 119000 / current liabilities
current liabilities = 119000/1.6
= 74375
now,
current liabilities =Accounts payable+ income tax payable
74375 = Accounts payable+33000
Accounts payable = 74375 -33000
= 41375
the balance in trade accounts payable as of December 31, Year 4 = 41375
b)Let the Equity be X .Total liabilities /total equity = .60 /X which means liabilities= .60 X
Total asset =Total liabilities+total equity
420000 = .60X +X
420000 = 1.60X
X= 420000/1.6
= 262500
Total equity = 262500
Now,
Total equity = common stock+retained earning
262500 = 307000+retained earning
retained earning = 262500-307000
= - 44500
the balance in retained earnings as of December 31, Year 4 = -44500
c)
Inventory turnover ratio =Cost of goods sold /Inventory
12.5 = 735000(see working above) /Inventory
Inventory = 735000/12.5
= 58800
the balance in the inventory account as of December 31, Year 4. = 58800