Question

The partially complete 2012 balance sheet and income statement for Challenge Industries are given below, followed by selected ratio values for the firm based on its completed 2012 financial statements. Use the ratios along with the partial statements to complete the financial statements. Hint: Use the ratios in the order listed to calculate the missing statement values that need to be installed in the partial statements.

Challenge Industries, Inc.

Balance Sheet
At December 31, 2012
(in $ thousands)

Assets		Liabilities and Equity
Current assets		Current liabilities
Cash	$ 52,000	Accounts payable	$150,000
Marketable securities	60,000	Notes payable	?
Accounts receivable	200,000	Accruals	80,000
Inventory	?	Total current liabilities	?
Total current assets	?	Long-term debt	425,000
Fixed assets (gross)	?	Total liabilities	?
Less: Accumulated depreciation	240,000	Shareholders’ equity
Net fixed assets	?	Preferred stock	N/A
Total assets	?	Common stock (at par)	150,000
		Paid-in capital in excess of par	N/A
		Retained earnings	390,000
		Total shareholders’ equity	?
		Total liabilities and shareholders’ equity	?

Inventory __________________                                        

Total current liabilities ______________

Total current assets __________                                        

Total liabilities ____________________

Fixed assets (gross) __________                                        

Net fixed assets _____________                                  

Total assets ________________                                         

Total shareholders’ equity ____________

Notes payable ______________                                         

Total liabilities and SHE _____________

Challenge Industries, Inc.

Income Statement
For the Year Ended December 31, 2012

(in $ thousands)

Sales revenue		$ 4,800,000
Less: Cost of goods sold		?
Gross profits		?
Less operating expenses:
Selling expense	$1,010,000
General and administrative expense	470,000
Depreciation	440,000
Total operating expenses		$1,920,000
Earnings before interest and taxes		?
Less: Interest expense		35,000
Earnings before taxes		?
Less: Taxes		130,000
Net income (Net profits after taxes)		?
Less: Preferred dividends		15,000
Earnings available for common stockholders		?
Less: Dividends		60,000
To retained earnings		?

Challenge Industries, Inc.

Ratios for the Year Ended December 31, 2012

Ratio	Value
Total asset turnover	2.00
Gross profit margin	40%
Inventory turnover	10
Current ratio	1.60
Net profit margin	3.75%
Return on common equity	12.5%

Cost of Goods Sold __________                                        

Taxes ____________________

Gross Profits _______________                                        

Net income _______________

EBIT _____________________                                        

Earn common shareholders ____________

Earnings before taxes ________                                         

To retained earnings __________________

Answer 1

i) Total assets turnover = Sales / Total assets

Here, Total assets turnover = 2,

Sales = $48,00,000

Now put the values into formula

2 = $48,00,000 / Total assets

Total assets = $48,00,000 / 2

Total assets = $24,00,000

ii) Gross profit margin = Gross profit / Sales

Here, Gross profit margin = 40%,

Sales = $48,00,000

Now put the values into formula

40% = Gross profit / $48,00,000

Gross profit = $48,00,000 * 40%

Gross profit = $19,20,000

iii) Inventory turnover = Cost of goods sold / Inventory

Here, Inventory turnover = 10,

Cost of goods sold = Sales - Gross profit

Cost of goods sold = $48,00,000 - $19,20,000

Cost of goods sold = $28,80,000

Now put the values into formula

10 = $28,80,000 / Inventory

Inventory = $28,80,000 / 10

Inventory = $2,88,000

iv) Current ratio = Current Assets / Current liabilities

Here, Current ratio = 1.60

Current assets = Cash + Marketable securities + Accounts recievable + Inventory

Current assets = $52,000 + $60,000 + $2,00,000 + $2,88,000

Current assets = $6,00,000

Now put the values into formula

1.60 = $6,00,000 / Current liabilities

Current liabilities = $6,00,000 / 1.60

Current liabilities = $3,75,000

v) Net profit margin = Net profit / Sales

Here, Net profit margin = 3.75%

Sales = $48,00,000

Now put the values into formula

3.75% = Net profit / $48,00,000

Net profit = $48,00,000 * 3.75%

Net profit = $1,80,000

vi) Net fixed assets = Total assets - Current assets

Net fixed assets = $24,00,000 - $6,00,000

Net fixed assets = $18,00,000

Gross fixed assets = Net fixed assets + Depriciation

Gross fixed assets = $18,00,000 + $2,40,000

Gross fixed assets = $20,40,000

vii) Notes payable = Current liabilities - Accounts payables - Accruals

Notes payable = $3,75,000 - $1,50,000 - $80,000

Notes payable = $1,45,000

viii) Total liabilities = Current liabilities + Long term debt

Total liabilities = $3,75,000 + $4,25,000

Total liabilities = $8,00,000

ix) Stockholders equity = Common stock + Retained earnings

Stockholders equity = $1,50,000 + $3,90,000

Stockholders equity = $5,40,000

x) Total liabilities & stockholders equity = Total assets

Here, Total assets = $24,00,000

Now,

Total liabilities & stockholders equity = $24,00,000

Note : Figures are in $ thousands.

Solution is provided based on data provided.