Question

In: Accounting

NYZ Corporation had the following Balance Sheet December 31, 2018 ASSETS Cash. $50,000 Accounts Receivable 80,000...

NYZ Corporation had the following

Balance Sheet

December 31, 2018

ASSETS

Cash. $50,000

Accounts Receivable 80,000

Inventory 70,000

Total Current Assets 150,000

Property, Plant and Equipment (net) 200,00

Long Term Investments 50,000

Goodwill 100,000

Total Assets $500,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts Payable $130,000

Accrued Expenses $120,000

Total Current Liabilities $250,000

Long-Term debt $150,000

Stockholders' Equity

common stock 10,000

Paid-In Capital 40,000

Retained Earnings 50,000

Total Liabilities & Stockholders' Equity $500,000

ALL REQUIRED

ABC Company is thinking about purchasing XYZ Corporation to merge into operations. You will need to first compute a Debt/Assets ratio BEFORE any adjustments AND explain what it means. Then, based solely on the above-provided balance sheet numbers and our class discussion, what adjustments or write-offs, if any, would you make in valuing XYZ Corporation? If no adjustments need to be made then be sure to clearly state that no adjustments are necessary. Also, IF you made any adjustments then you will need to compute another adjusted Debt/Asset ratio. Your Debt/Assets ratio(s) must include a brief discussion of any insights you have.

Expert Solution


First compute a Debt/Assets ratio BEFORE any adjustments

Debt /Assets Ratio = Total Liabilities / Total Assets
= 400,000 / 500,000
= 0.8

Debt asset ratio represent how much of the total asset is financed by the debt of any company.

There is a goodwill of $ 100,000 included in the total assets of $ 500,000. The same needs to be written off while valuing XYZ corporation as goodwill in balance sheet does not have any relevance for valuation purpose.



Adjusted Debt /Assets Ratio	1	( 400,000 / ( 500,000 - 100,000 ) )

Debt Asset Ratio is a leverage ratio that measures the amount of total assets that are financed by creditors instead of investors. It measures what percentage of assets is funded by liabilities compared with the percentage of resources that are funded by the equity. In our case after adjustment , it is shows that whole assets have been financed from debt.

ekkarill92 answered 2 years ago

The December 31, 2018 balance sheet of Jenson Company had Accounts Receivable of $450,000 and a...

The December 31, 2018 balance sheet of Jenson Company had Accounts Receivable of $450,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2019, the following transactions occurred: Sales on account $1,600,000 Sales returns and allowances, $75,000 Collections from customers, $1,450,000 Accounts written off $35,000 Previously written off accounts of $6,000 were collected (a) Journalize the 2019 transactions. Disregard any impact on inventory. (b) If Jenson uses the percentage of sales basis to estimate bad debts expense...

The December 31, 2021, balance sheet of the Swifty Corporation had Accounts Receivable of $680,000 and...

The December 31, 2021, balance sheet of the Swifty Corporation had Accounts Receivable of $680,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2022, the following transactions occurred: sales on account $1,554,000; sales returns and allowances, $166,000; collections from customers, $1,253,000; accounts written off, $38,000; previously written off accounts of $9,000 were collected. Journalize the 2022 transactions. AND If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible...

SMC, Inc. Balance Sheet December 31, 2018 Assets Cash ... $34,500 Accounts receivable .25,000 Inventory ..10,000...

SMC, Inc. Balance Sheet December 31, 2018 Assets Cash ... $34,500 Accounts receivable .25,000 Inventory ..10,000 Supplies .. 200 Total assets.. $69,700 Liabilities and Stockholders’ Equity Liabilities: Accounts payable .. $12,000 Salaries payable .. 1,000 Income taxes payable .. 3,675 Total liabilities.. $16,675 Stockholders’ equity: Capital stock (10,000 shares outstanding).. $25,000 Retained earnings .. 28,025 Total stockholders’ equity ...53,025 Total liabilities and stockholders’ equity.. $69,700 SMC, Inc. Income Statement For the Year Ended December31,2018 Sales revenue .. $110,000 Rent revenue.....

SMC, Inc. Balance Sheet December 31, 2017 Assets Cash ......................................................................................................... $34,500 Accounts receivable ...................................................................

SMC, Inc. Balance Sheet December 31, 2017 Assets Cash ......................................................................................................... $34,500 Accounts receivable ................................................................................ 25,000 Inventory .................................................................................................. 10,000 Supplies ................................................................................................... 200 Total assets.............................................................................................. $69,700 Liabilities and Stockholders’ Equity Liabilities: Accounts payable ............................................................................. $12,000 Salaries payable ............................................................................... 1,000 Income taxes payable ...................................................................... 3,675 Total liabilities.......................................................................................... $16,675 Stockholders’ equity: Capital stock (10,000 shares outstanding).................................... $25,000 Retained earnings ............................................................................ 28,025 Total stockholders’ equity ....................................................................... 53,025 Total liabilities and stockholders’ equity................................................ $69,700 SMC, Inc. Income Statement For the Year Ended December31,2017 Sales revenue .............................................................................................

Gil's Fish and Tackle, Inc. Balance Sheet At December 31, 2018 Assets Cash $ 28,500 Accounts...

Gil's Fish and Tackle, Inc. Balance Sheet At December 31, 2018 Assets Cash $ 28,500 Accounts Receivable (less allowance) 208,800 Inventories 154,900 Property, Plant and Equipment 282,800 Long-term Investments 210,000 Total Assets $ 885,000 Liabilities Accounts Payable $ 58,200 Current Portion of Long-Term Debt 81,400 Long-Term Notes Payable 139,000 Total Liabilities 278,600 Stockholders' Equity Contributed Capital 460,000 Retained Earnings 146,400 Total Stockholders’ Equity 606,400 Total Liabilities and Stockholders’ Equity $ 885,000 Gil's Fish and Tackle, Inc. Income Statement For the...

Recognition and Valuation of Accounts Receivable The December 31, 2018 balance sheet of the Kramer Company...

Recognition and Valuation of Accounts Receivable The December 31, 2018 balance sheet of the Kramer Company had Accounts Receivable of 650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2019, the following transactions occurred: sales on account $1,550,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected. Instructions (a) Journalize the 2019 transactions. (b) If the company uses the percentage of receivables basis to...

The December 31, 2021, balance sheet of the Windsor, Inc. had Accounts Receivable of $670,000 and...

The December 31, 2021, balance sheet of the Windsor, Inc. had Accounts Receivable of $670,000 and a credit balance in Allowance for Doubtful Accounts of $30,000. During 2022, the following transactions occurred: sales on account $1,558,000; sales returns and allowances, $171,000; collections from customers, $1,257,000; accounts written off, $39,000; previously written off accounts of $9,000 were collected. Journalize the 2022 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation...

The December 31, 2016, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and...

The December 31, 2016, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2017, the following transactions occurred: sales on account $1,550,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected. Journalize the 2017 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation...

The December 31, 2021, balance sheet of the Vaughn Manufacturing had Accounts Receivable of $730,000 and...

The December 31, 2021, balance sheet of the Vaughn Manufacturing had Accounts Receivable of $730,000 and a credit balance in Allowance for Doubtful Accounts of $34,000. During 2022, the following transactions occurred: sales on account $1,559,000; sales returns and allowances, $130,000; collections from customers, $1,340,000; accounts written off, $38,000; previously written off accounts of $9,000 were collected. Journalize the 2022 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation...

The December 31, 2017 balance sheet of Barone Company had Accounts Receivable of $400,000 and a...

The December 31, 2017 balance sheet of Barone Company had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2018, the following transactions occurred: sales on account $1,500,000; sales returns and allowances, $50,000; collections from customers, $1,250,000; accounts written off $36,000; previously written off accounts of $6,000 were collected. If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 8%...