Check My WorkCheck My Work Formula Approach Problem 4-22 Balance Sheet Analysis
ID: 2649342 • Letter: C
Question
Check My WorkCheck My Work
Formula Approach
Problem 4-22
Balance Sheet Analysis
Complete the balance sheet and sales information using the following financial data:
Total assets turnover: 1.7x
Days sales outstanding: 41.5 daysa
Inventory turnover ratio: 6x
Fixed assets turnover: 3.5x
Current ratio: 1.5x
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 35%
aCalculation is based on a 365-day year. Round your answer to the nearest cent.
4-2: Liquidity Ratios
4-3: Asset Management Ratios
4-5: Profitability Ratios
Problem Walk-Through
Formula Approach
Problem 4-22
Balance Sheet Analysis
Complete the balance sheet and sales information using the following financial data:
Total assets turnover: 1.7x
Days sales outstanding: 41.5 daysa
Inventory turnover ratio: 6x
Fixed assets turnover: 3.5x
Current ratio: 1.5x
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 35%
aCalculation is based on a 365-day year. Round your answer to the nearest cent.
Explanation / Answer
Total Asset Turnover = 1.7
=> Sales = 1.7 x Total Assets = 1.7 x 325000 = $552500
Fixe Asset Turnover = 3.5
=> Fixed Asset = Sales / 3.5 = 157857.14
Inventory Turnover = 6
=> Inventory = sales / 6 = 552500 / 6 = $ 92083.33
Days Sales outstanding = 41.5 days
Days sales outstanding = (Accounts receivable / Total Credit sales) x 365 days
=> Accounts receivable = (Days Sales Outstanding x Total Credit Sales) / 365 Days
=> Accounts receivable = (41.5 days x $552500) / 365 days = $ 62818.49
Therefore,
Cash = Total Asset - (Fixed Asset + Accounts receivable + Inventory) = 325000 - (157857.14 + 92083.33 + 62818.49) = $12241.04
Therefore, Current Asset = Accounts receivable + Inventory + Cash = 92083.33+62818.49+12241.04=$167142.86
Current Ratio = 1.5
=> Current Asset / Current Liability = 1.5
=> Current Liability = 167142.86/1.5 = $111428.57
(Sales - Cost of Goods sold) / Sales = 0.35
=> (552500 - Cost of Goods sold) / 552500 = 0.35
=> Cost of Goods sold = 552500 - 0.35 x 552500 = $359125
Total Liabilitites and Equity = Total Assets = $325000
Therefore,
Common Stock
= Total Liabilitites and Equity - (Long Term Debt + Current Liability + Retained earnings)
= 325000 - (48750 + 111428.57 +113750) = $ 51071.43
Balance sheet Liabilities Assets Cash $ 12,241.04 Current Liabilities $ 1,11,428.57 Accounts receivable $ 62,818.49 Long Term Debt $ 48,750.00 Inventories $ 92,083.33 Common Stock $ 51,071.43 fixed Aseets $ 1,57,857.14 Retained Earnings $ 1,13,750.00 Total Assets $ 3,25,000.00 Total Liabilities and Equity $ 3,25,000.00 Sales $ 5,52,500.00 Cost of goods sold $ 3,59,125.00