Answer:
Sales $600,000
Cost of Goods Sold $450,000
Cash $28,000
Accounts payable $110,000
Accounts receivable $60,000
Inventory $120,000
Common Stock $140,000
Fixed Asset $192,000
Total Liabilities and equity $400,000
Explanation:
1.To compute the missing amount of sales, we must look for the data given that has something to do with sales. And the two data given that will give us the hint are the Asset turnover and the total asset.
ASSET TURNOVER = Net Sales / Total Asset
1.5 = Net Sales * $400,000
Net Sales = 1.5 * $400,000
Net Sales = $600,000
To check if the answer is correct:
$600,000 / $400,000 = 1.5 <em>which is equal to the data given</em>
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2. The Sales has been computed above and Gross profit margin on sales is present, these are the hint we needed to compute the Cost of goods sold.
Sales 100%
<u>Less: Gross profit margin on sales 25%</u>
Cost of goods sold ratio on sales 75%
Therefore, $600,000 x 75% (ratio on sales) = $450,000
3.ACCOUNTS RECEIVABLE
It is impossible to compute the cash based on the data given without the accounts receivable. So, let's compute the accounts receivable beforehand.
The additional hint that we have is the Days sales outstanding (based on 365-day year).
- Days sales outstanding = Accounts receivable / (Annual credit sales / 365 days)
- 36.5 days = Accounts receivable / ($600,000 / 365)
- Accounts receivable = 36.5 * ($600,000 / 365)
- Accounts receivable = $60,000
<em>To check our answer:</em>
<em>$60,000 / ($600,000 / 365)</em>
<em>$60,000 / 1,643.84</em>
<em>36.5 days</em>
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4. ACCOUNTS PAYABLE
Next missing item that we will compute is the accounts payable. The hint that we have that is related to the computation of accounts payable is the Liability to asset ratio.
FORMULA :
Liability to asset ratio = Total Liabilities / Total Assets
40% = Total Liabilities / $400,000
Total Liabilities = 40% * $400,000
Total liabilities = $160,000
To Check:
<em>$160,000 / $400,000 = 40% which is equal to the data given</em>
<em>Next Step, Compute accounts payable (the only current liability account in the given partial income statement). Long term debt is the only non-current liability on the data given, which means it is the only account that is included in the total liability of $160,000.</em>
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So, $160,000 less $50,000 = $110,000 (accounts payable)
5. CASH
We can now compute the cash based on the accounts already computed above. The additional hint that we have is the quick ratio. Quick ratio is the quotient of Cash & cash equivalent plus Marketable securities (which is not present in the data given, therefore ignore) plus the accounts receivable over the current liability.
Computation:
0.80 = (Cash + Marketable security + Accounts receivable) / current liability
0.80 = (Cash + Accounts receivable) / $110,000
Cash + Accounts receivable = 0.80 * $110,000
Cash + Accounts receivable = 88,000
Cash + $60,000 = $88,000
Cash = $88,000 - $60,000
Cash = $28,000
6. INVENTORY
To compute the inventory, we need the inventory turn-over hint.
Inventory turn-over = Cost of goods sold / Average inventory
3.75 = $450,000 / Ave inventory
Average inventory = $450,000 / 3.75
Average inventory = $120,000
to check:
<em>$450,000 / $120,000 = 3.75 which is equal to the data given</em>
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7. COMMON STOCK
Total asset = Liabilities + Equity
$400,000 = $160,000 +?
$400,000 - $160,000 = $240,000
Equity is composed of common stock and retained earnings. Therefore, $240,000 - $100,000 (Retained earnings) = $140,000 (common stock)
8. FIXED ASSET
It is the only asset account that is missing after we computed cash, accounts receivable and inventory. Therefore total assets less current assets equals fixed assets.
- $400,000 - ($28,000 + $60,000 + $120,000)
- $400,000 - $208,000
- $192,000 (fixed assets)
9. TOTAL LIABILITIES AND EQUITY
Current liability + Non-current liability + Common stock + Retained earnings
$110,000 + $50,000 + $140,000 + $100,000
$400,000