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Finance question Given this ABC Co's. Balance Sheet at 31/12/2018 Assets Liabilities Cash 65000 Account payable...

Finance question

Given this ABC Co's. Balance Sheet at 31/12/2018

Assets

Liabilities

Cash

65000

Account payable

Mar/sec

30000

Notes payable

8000

Acc/rec

180000

Interest payable

4800

inventory

accurals

4200

Total C/A

Total C/L

Gross fixed assets

Long term debt

Less Acc/Dep

25000

common stock

115000

Net fixed assets

Retaine earning

125000

Total assets

Total liabilities and eq

Another data were provided about the company during 2018

Sales = $1,840,00.0 ; Gross profit margin = 30.0%; Inventory Turn-Over = 8.0 times; Current Ratio - 5.0; Total Asset Turn-Over = 2.0; Total Debt ratio = 73.91%; Purchases = 60.0% of sales;(Use 360 days/year).

hint: use the debt ratio in your calculations

Find

1- ABC. Inventories?

2 -ABC Net Fixed Assets?

3 - ABC APP average Payment Period)and COM (Average Age of Inventory) ?

4- ABC Total Current Liabilities and COM Total Current Assets?

Solutions

Expert Solution

1.Calculation of ABC. Inventories

Cost of goods sold=Sale-Gross profit

= $1,840,000-( $1,840,000*30%)

=$1840,000-$552,000

=$1288,000

Inventory Turnover=Cost og goods sold/Average inventory

Average inventory=Cost og goods sold/Inventory Turnover

=$1288000/8 times

=$161,000

we know that average inventory is;

=(Opening Inventory+closing Inventory)/2

In the given question nothing is given about opening inventory,hence it is assumed that average inventory is equal to closing inventory.

Accordingly,ABC. Inventories is $161000

2.ABC Net Fixed Assets

Total Assets turnover=Net Sales/Total assets

therefore,

Total Assets=Net Sales/Total Assets turnover

=$1840000/2

=$920,000

Total Assets=Fixed assets+Current asset

Fixed assets=Total Assets-Current asset

=$920,000-(65,000+30,000+180,000+161,000)

=$920,000-$436,000

=$484,000

Therefore,ABC Net Fixed Assets is $484,000

3.Calculation of ABC APP

For calculating APP,firstly we have to calculate the amount of Accounts Payable

Current ratio=Current Assets/current liablities

Thus,

current liablities=Current Assets/Current ratio

=$436,000/5

=$87,200

Now,

Accounts Payable=Total current liablities-Notes payable-interest payable-accurals

=$87,200-$8000-$4800-$4200

=$70200

APP=Accounts payable/(Total credit purchase/days in a period)

Nothing is given about the credit purchase,hence it is assumed that all purchases are mede in credit.

Total credit purchase=$1840,000*60%

=$1104,000

APP=$70200/($1104,000/360 days)

=$70200/3066.67

=22.89 days

Thus ABC APP is 22.89 days.

Average Age of Inventory=(Inventory/Cost of goods sold)*360 days

=($161000/$1288,000)*360 days

=45 days

Average Age of Inventory is 45 days

4.Total current Assets(already calculated in question 2)

=$436,000

Total current liablities(already calculated in question 3)

=$87,200

jeff jeffy answered 1 year ago
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