Question

​(Pro forma balance sheet construction​) Use the following​ industry-average ratios to construct a pro forma balance sheet for​ Phoebe's Cat Foods​ Inc.:

Total asset turnover   1.6 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   2.0 times
Sales (all on credit)   $3,000,000
Cost of goods sold   75% of sales
Debt ratio   60%

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

Cash ​$

Accounts receivable

Inventories

Net fixed assets

Total assets ​$

Fill in the liabilities and common equity section of the pro forma balance sheet. ​(Round all items to the nearest​ dollar.)

Current liabilities ​$

​Long-term debt

Total liabilities ​$

Common equity

Total liabilities and common equity ​$

Answer 1

- Total Asset Turnover = Net sales/Total Assets

1.6 = $3,000,000/Total Assets

Total Assets = $1875,000

- Average collection period = (Accounts receivable/Net Credit Sales)*365

16 =(Accounts receivable/$3,000,000)*365

Accounts receivable = $ 131,506.85

- Fixed asset turnover = Net sales/Net Fixed Assets

6 = 3000,000/Net Fixed Assets

Net Fixed Assets = $ 500,000

- Inventory turnover= COGS/Inventory

COGS = 75% of Sales = $3,000,000*75%

= $2250,000

2 = 2250,000/Inventory

Inventory = $ 1125,000

- Total Assets = Net Fixed Assets + Cash + Inventories + Accounts receivable

1875,000 = 500,000 + Cash + 1125,000 + 131,506.85

Cash = $ 118,493.15

- Current Ratio = Current Assets/Current Liabilities

Current Assets = (Cash + Inventories + Accounts receivable)

2 = (118,493.15+1125,000 + 131,506.85)/Current Liabilities

Current Liabilities = $687,500

- Debt Ratio = Total Liabilities/Total Assets

Debt Ratio = (Current Liabilities + Long-term Debt)/Total Assets

0.60 = (687500 + Long-term Debt)/1875,000

Long-term Debt = $ 437,500

- Total Assets = Total liabilities and common equity

Total liabilities and common equity = Current Liabilities + Long-term Debt + Common equity

1875,000 = 687,500 + 437,500 + Common equity

Common equity = $ 750,000

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