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    Liquidity Growth and Income Statements

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    1) Construct the Current Assets section of the Balance Sheet from the following:

    Sales (Credit) 1,250,000
    Gross Profit ( 15% of Sales )
    Inventory Turnover 20x
    Current Liabilities 225,000
    Working Capital -75,000
    Average Collection Period 27 days

    2) Given the following information & ratios , assemble a Balance Sheet

    Sales ( all on credit ) 2,000,000
    Cost of Goods Sold 1,800,000
    Stockholders Equity 250,000
    Long term debt is 70% of total debt

    DSO 18 days
    Inventory Turnover 24x
    Debt/Equity 2.5x
    Current 1x

    Assets Liabilities & Stockholders Equity
    Cash Total Current Liabilities
    A/R Long term Liabilities
    Inventory
    Total Current Assets Total Liabilities

    Net Plant & Equipment Total Stockholders Equity

    Total Assets Total Debt & Stockholders Equity

    3) Construct the following Balance Sheet from the following:

    DSO 10 days
    Sales 4,500,000
    Inventory Turnover 27x
    Cost of Goods Sold 90% of Sales
    Current Ratio .8X
    Long term debt is equal to two thirds of the total debt
    Creditors own 60% of the assets. Assets total 2MM

    Assets Liabilities

    Cash Current Debt
    A/R Long Term Debt
    Inv
    Total Debt
    Total Current

    Fixed Assets

    Total Assets Net Worth

    4) Given the following information , please answer the following for the '02 & '03 years.
    As a given , assume the company extends 15 day terms on receivables
    and the industry median for Profit margin is 2% ; for current ratio is 1.5x

    Use ratios to support your answers

    (a) If one of the bank covenants requires a maximum Debt/Equity ratio of 2x; were they in
    compliance for the '03 year. If so how much more could they borrow.

    (b) Comment on the company's performance relative to their collection of receivables

    © Did the company meet their stated goal of a return to shareholders of 20%

    d) What would the profit in '02 have been in the budget called for a profit margin of 4.5%

    e) Comment on the Company's Liquidity position

    ABC Company
    Income Statement
    For the years ended December 31 , 2002 & December 31,2003

    31/12/2002 31/12/2003

    Sales 5,000,000 5,500,000
    COGS 4,250,000 4,675,000
    Gross Profit 750,000 825,000
    S & G Exp 500,000 550,000
    Depreciation 50,000 75,000
    EBIT 200,000 200,000
    Interest 25,000 20,000
    EBT 175,000 180,000
    Gain /Loss on sale of Assets 0 -150,000

    Taxes 70,000 12,000
    EAT 105,000 18,000
    Dividends 1,000 1,000

    ABC Company
    Balance Sheet

    31/12/2002 31/12/2003

    Current Assets:
    Cash 125,000 25,000
    A/R 225,000 675,000
    Inventory 100,000 150,000
    Total Current Assets 450,000 850,000

    Net Plant & Equipment 500,000 450,000

    Total Assets 950,000 1,300,000

    Current Liabilities
    A/P 200,000 250,000
    Accrued Expenses 100,000 50,000
    Total Current Liabilities 300,000 300,000

    Long term Liabilities 325,000 558,000

    Total Liabilities 625,000 858,000

    Stockholders Equity
    Common Stock 10,000 30,000
    Capital in excess of Par 65,000 145,000
    Retained Earnings 250,000 267,000
    Total Stockholders Equity 325,000 442,000

    Total Liabilties & Stockholders Equity 950,000 1,300,000

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    https://brainmass.com/business/accounting/liquidity-growth-income-statements-469015

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    Solution Summary

    Liquidity growth and income statements are examined.

    $2.19

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