Question

1. As the accountant of Race Co., you have been requested to calculate (a) net sales, (b) cost of merchandise sold, (c) gross profit, and (d) net income from the following: gross sales, $40,000; sales returns, $3,000; beginning inventory, $6,000; net purchases, $8,000; ending inventory, $1,000; operating expenses, $9,200.

2. The total debt to total assets of the Rig Company was .33. The total of Rig’s assets was $205,000. What is the amount of total debt to Rig Company?

3. the Moore Co. has a current ratio of 1.8. The acid-test ratio is 1.3. The current liabilities of Moore are $15,000. Calculate the dollar amount of merchandise inventory (assume no prepaid expenses).

Answer 1

Ans : 1a) Net Sales = Gross Sales - Sales Returns
= $40,000 - $ $3,000
= $37,000

1b) Cost of Merchandise Sold = Opening Inventory + Net Purchases - Closing Inventory
= $6,000 + $8,000 - $1,000
= $13,000

1c) Gross Profit = Net Sales - Cost of Merchandise sold
= $37,000 - $13,000
= $24,000

1d) Net Income = Gross Profit - Operating Expenses
= $24,000 - $9,200
= $14,800

2) Computation of total Debt

Total Debt to Total Assets Ration= 0.33
Total Assest = $205,000

Total Debt to Total Assets Ratio = Total Debt / Total Assets
0.33 = Total Debt / $205,000
Total Debt = $205,000 * 0.33
Total Debt = $67,650

3) Computation of Dollar amt of merchandise inventory

Current Liabilities = $15,000

Step 1 : Computation of Current Assets using Current Ratio

Current Ratio = Current Assets / Current Liabilities
1.8 = Current Assets / $15,000
Currents Assets = $15,000 * 1.8 = $27,000

Step 2 : Computation of Merchandise Inventory using acid test ratio

Acid-test ratio = ( Current Assets - Inventory ) / Current Liabilities
1.3 = ($27000 - Inventory ) / $15,000
($15,000 * 1.3) = $27000 - Inventory
Inventory = $27000 - $19,500
Inventory = $7,500

Dollar Amt of Merchandise inventory = $7,500