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integrating Case 5-23
Balance Sheet
Assets
Cash $ 15,000
Accounts receivable (net) (e)
Inventory (d)
Prepaid expenses and other current assets (i)
Current assets (h)
Property, plant, and equipment (net) (j)
$ (b)
Liabilities and Shareholders' Equity
Accounts payable $ (g)
Short-term notes 5,000
Current liabilities (f)
Bonds payable (l)
Shareholders' equity (k)
$ (b)
Income Statement
Sales (a)
Cost of goods sold (c)
Gross profit (c)
Operating expenses (o)
Interest expense (m)
Tax expense (n)
Net income mce_markernbsp;
Case 5-23 (concluded)
Calculations ($ in 000s):
a. Profit margin on sales = Net income ÷ Sales = 5%
For example:
Net income = 17000
17000/X = .05
Cross multiply
17000
_____ =.05
X
17000 = .05X
Divide both sides by .05
X = 17000/.05
X = 340,000
b. Return on assets = Net income ÷ Total assets = 7.5%
For example:
Net income = 17000
17000/X = .075
Cross multiply
17000 = .075X
Divide both sides by .075
X = 17000/.075
X = 226,666
c. Gross profit margin = Gross profit ÷ Sales = 40%
Cost of goods sold = Sales - Gross profit =
d. Inventory turnover ratio = Cost of goods sold ÷ Inventory = 6
e. Receivables turnover ratio = Sales ÷ Accounts receivable = 25
f. Acid-test ratio = Cash + AR + ST Investments ÷ Current liabilities = .9
g. Accounts payable = Current liabilities - Short-term notes = $
h. Current ratio = Current assets ÷ Current liabilities = 2
i. Prepaid expenses and other current assets =
Current assets - (Cash + AR + Inventory) = $
j. Property, plant, and equipment = Total assets - Current assets =
k. Return on shareholders' equity = Net income ÷ Shareholders' equity =10%
l. Debt to equity ratio = Total liabilities ÷ Shareholders' equity =
Bonds payable = Total liabilities - Current liabilities =
m. Interest expense = 8% x (Short-term notes + Bonds )
Interest expense =
n Times interest earned ratio = (Net income + Interest +Taxes) ÷ Interest = 12
Times interest earned ratio =
Times interest earned ratio =
Tax expense = mce_markernbsp;
o. Operating expenses = (Sales - Cost of goods sold - Interest expense - Tax expense) - Net income =
Case 5-23
Net income 16000
Short term note 5000
Bonds interest rate 0.08
Cash balance 15000
Profit margin on sales 0.05
Return on assets 0.075
Gross profit margin 0.4
Inventory turnover ratio 6
Receivables turnover ratio 25
Acid test ratio 0.9
Current ratio 2
Return on shareholders equity 0.1
Debt to equity ratio 0.33
Times interest earned 12
Integrating Case 5-23
Balance Sheet
Assets
Cash $ 15,000
Accounts receivable (net) (e)
Inventory (d)
Prepaid expenses and other current assets (i)
Current assets (h)
Property, plant, and equipment (net) (j)
$ (b)
Liabilities and Shareholders’ Equity
Accounts payable $ (g)
Short-term notes 5,000
Current liabilities (f)
Bonds payable (l)
Shareholders’ equity (k)
$ (b)
Income Statement
Sales (a)
Cost of goods sold (c)
Gross profit (c)
Operating expenses (o)
Interest expense (m)
Tax expense (n)
Net income $
Case 5-23 (concluded)
Calculations ($ in 000s):
a. Profit margin on sales = Net income ÷ Sales = 5%
For example:
Net income = 17000
17000/X = .05
Cross multiply
17000
_____ =.05
X
17000 = .05X
Divide both sides by .05
X = 17000/.05
X = 340,000
b. Return on assets = Net income ÷ Total assets = 7.5%
For example:
Net income = 17000
17000/X = .075
Cross multiply
17000 = .075X
Divide both sides by .075
X = 17000/.075
X = 226,666
c. Gross profit margin = Gross profit ÷ Sales = 40%
Cost of goods sold = Sales – Gross profit =
d. Inventory turnover ratio = Cost of goods sold ÷ Inventory = 6
e. Receivables turnover ratio = Sales ÷ Accounts receivable = 25
f. Acid-test ratio = Cash + AR + ST Investments ÷ Current liabilities = .9
g. Accounts payable = Current liabilities – Short-term notes = $
h. Current ratio = Current assets ÷ Current liabilities = 2
i. Prepaid expenses and other current assets =
Current assets – (Cash + AR + Inventory) = $
j. Property, plant, and equipment = Total assets – Current assets =
k. Return on shareholders’ equity = Net income ÷ Shareholders’ equity =10%
l. Debt to equity ratio = Total liabilities ÷ Shareholders’ equity =
Bonds payable = Total liabilities – Current liabilities =
m. Interest expense = 8% x (Short-term notes + Bonds )
Interest expense =
n Times interest earned ratio = (Net income + Interest +Taxes) ÷ Interest = 12
Times interest earned ratio =
Times interest earned ratio =
Tax expense = $
o. Operating expenses = (Sales – Cost of goods sold – Interest expense – Tax expense) – Net income =