Reference no: EM13149095

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 =