gem3355
Sep 30, 2008, 06:40 AM
Any one have any idea on how to solve this problem?? I need an explanation as to how we get the numbers for the forecasted balance sheet from the info given in this problem
Thanks in advance.
Tarheel Furniture Company is planning to establish a wholly owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary’s balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average.
Tarheel plans to make all sales on credit. All calculations assume a 365-day year. In your computations, you should round all numbers to the nearest $1,000.
Based upon the industry average financial ratios presented here, complete the projected balance sheet for Tarheel’s upholstery subsidiary.
Industry Averages
Current ratio 2:1
Quick ratio 1:1
Net profit margin ratio 5 percent
Average collection period 20 days
Debt ratio 40 percent
Total asset turnover ratio 2 times
Current liabilities/stockholders equity 20 percent
Forecasted Upholstery Subsidiary Balance Sheet
Cash Total current liabilities
Accounts Receivable Long-term debt
Inventory Total debt
Total current assets Stockholder’s equity
Net fixed assets Total liabilities & stockholder’s equity
Total assets
Thanks in advance.
Tarheel Furniture Company is planning to establish a wholly owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary’s balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average.
Tarheel plans to make all sales on credit. All calculations assume a 365-day year. In your computations, you should round all numbers to the nearest $1,000.
Based upon the industry average financial ratios presented here, complete the projected balance sheet for Tarheel’s upholstery subsidiary.
Industry Averages
Current ratio 2:1
Quick ratio 1:1
Net profit margin ratio 5 percent
Average collection period 20 days
Debt ratio 40 percent
Total asset turnover ratio 2 times
Current liabilities/stockholders equity 20 percent
Forecasted Upholstery Subsidiary Balance Sheet
Cash Total current liabilities
Accounts Receivable Long-term debt
Inventory Total debt
Total current assets Stockholder’s equity
Net fixed assets Total liabilities & stockholder’s equity
Total assets