2/1/2019

Test Problem
• Based on the following information please complete the missing fieldsfor a Balanace
Sheet Information Provided:
• Debt to Assets = 35%
• Quick Ration = 1.2
• Asset Turnover = 4 times
• Fixed Asset Turnover = 10 times
• Current Ratio = 2:1
• Average Collection Period = 20 days
• Balance Sheet Information
• Required:Cash__________________ CurrentLiabilities______________
• Receivables__________________ Bond Payable ____________________
• Inventory____________________ Total Liabilities _______________
• Total Current Assets________ Net Worth ________________________
• Plant and Equipment__________ ______________________________
• Total Assets 1,000,000 Total Liabilites / Net Worth_____

Solution
• we know that:
• Total Liabilities + Net Worth = Total Assets
• Total Liabilities + Net Worth = 1,000,000
• we know that the Debt/Assets ratio is equal to 35%.
Since the ratio is:
• Total Liabilities / Total assets= Debt/Asset Ratio =
35% = 0.35
• Total Liabilities are 35% of 1,000,000; that is, 350,000.
• Since Net Worth + Total Liabilities = 1,000,000
• Net Worth = 1,000,000 - 350,000 = 650,000

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Solution (cont.)
• let's use the turnover ratios. We have:
• Net Sales / T. Asset = Asset Turnover = 4
• Annual sales are = 4,000,000Net Sales / F. Asset = Fixed
Asset Turnover = 10
• T. Asset / F. Asset = 4 / 10 = 0.4
• Fixed Assets = 0.4 * 1,000,000 = 400,000
• Total Assets = Fixed Assets + Total Current Asset
• Then 1,000,000 = 400,000 + Total Current Assets
• Total Current Assets = 600,000

Solution (cont.)
• Now complete the "liabilities" side of the balance sheet. We
know that
• Current Ratio = Current Asset/ Current Liab. = 2
• Therefore, since Current Assets is 600,000, then Current
Liabilities = 300,000
• Total Liabilities = Current Liabilities + Bonds Payable
• we already know that Total Liabilities are 350,000 and
CurrentLiabilities are 300,000,
• then Bonds Payable = 50,000

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Solution (cont.)
• Quick Ratio = Cash + Receivables /Current Liabilities = 1.2
• So, since Curr. Liabilities is 300,000, Cash + Receivables =
300,000*1.2 = 360,000
• Cash + Receivables + Inventory = Total Current Assets, and
Total Current Assets are 600,000,
• Then :Inventory = 600,000 - 360,000 = 240,000
• Avg Col Period =Receivables / Avg Daily Sales = 20

Solution (cont.)

• Using a 250-days in a year (which is roughly the number

of working days in one year), we get that average daily
sales are 4,000,000/250 = 16,000. Therefore, we get
that:
• Receivables = 16,000*20 = 320,000
• we knew that Cash + Receivables = 360,000, we
finally get that Cash = 40,000