In the table below, each asset, liability, and net worht account is a percentage
ID: 2600267 • Letter: I
Question
In the table below, each asset, liability, and net worht account is a percentage of total assets and each income account is a percentage of net sales.
Identify which of the business in the table below is a manufacturer of mattresses, wholesaler of fish, retailer of recreational vehicles, cleaning and maintenance business, or retail drugstore. Give reasons for your answer.
Business
A
B
C
D
E
Assets
Accounts Receivable
39%
42%
3%
29%
19%
Inventory
28%
4%
76%
27%
47%
Net Fixed Assets
16%
24%
11%
27%
15%
Liabilities
Notes Payable(Short term Debt)
20%
12%
46%
7%
7%
Current Maturities of long term debt
3%
4%
3%
4%
4%
Accounts Payable
27%
12%
8%
23%
25%
Total Current Liabilities
59%
44%
66%
42%
45%
Long Term Debt
6%
14%
9%
14%
15%
Total Liabilities
70%
62%
77%
61%
63%
Net Worth
30%
38%
23%
39%
37%
Income Statement
Net Sales
100%
100%
100%
100%
100%
Gross Profit
14%
100%
20%
31%
29%
Operating Expense
12%
97%
17%
27%
26%
Operating Profit
2%
4%
3%
4%
3%
Profit Before Taxes
1%
3%
2%
4%
2%
Business
A
B
C
D
E
Assets
Accounts Receivable
39%
42%
3%
29%
19%
Inventory
28%
4%
76%
27%
47%
Net Fixed Assets
16%
24%
11%
27%
15%
Liabilities
Notes Payable(Short term Debt)
20%
12%
46%
7%
7%
Current Maturities of long term debt
3%
4%
3%
4%
4%
Accounts Payable
27%
12%
8%
23%
25%
Total Current Liabilities
59%
44%
66%
42%
45%
Long Term Debt
6%
14%
9%
14%
15%
Total Liabilities
70%
62%
77%
61%
63%
Net Worth
30%
38%
23%
39%
37%
Income Statement
Net Sales
100%
100%
100%
100%
100%
Gross Profit
14%
100%
20%
31%
29%
Operating Expense
12%
97%
17%
27%
26%
Operating Profit
2%
4%
3%
4%
3%
Profit Before Taxes
1%
3%
2%
4%
2%
Explanation / Answer
B should be cleaning and maintenance business as the gross profit of 100% can only be possible for a pure service sector business. Also, inventory as low as 4% also supports the idea of this being a service providing business.
C is the retail drugstore as customers do not buy medicine on credit mostly, it's accounts receivable are the lowest of 3%. Also, medicines of a drugstore sell quickly, in all probability it would need the highest inventory, which is 76% in case of C.
A is retailer of recreational vehicles as the people generally buy these on finance from banks, thereby, leading to higher count in accounts receivable. The figure of inventory is also moderately low, such businesses do not generally keep higher counts of stock as they deal into more space occupying product.
D is a manufacturer of mattresses and E is the wholesaler of fish. E being low on accounts receivable 19% as fishes are highly perishable item and people wouldn't generally make sale on credit for items which perish so quickly, it may result into loss for business. D and E both have very low figures of notes payables, which is quite possible in case of maufacturers and wholesalers.