View Full Version : How to complete a balance sheet with ratios?
solergirl
Nov 20, 2009, 11:55 AM
Use the following information to complete the balance sheet below:
Long-term debt to stockholders equity .5
Total asset turnover 2.5 times
Average Collection period 9 times
Gross Profit Margin 10%
Acid-test ratio 1
Cash Notes and payables $100,000
Accounts Long term debt
Receivable
Inventory Common stock 100,000
Plant assets Retained earnings 100,000
Total assets Total Liabilities
And capital
morgaine300
Nov 21, 2009, 01:35 AM
Best way to go about these types of problems is to write out each of the equations used in the problem. Also write out your accounting equation. Then plug in every number that is given, or the answer to the equation that's given. For example:
\text{\frac{sales}{assets}\ =\ 2.5}
No, you aren't given sales or assets. The idea is to write out every equation in that manner and insert whatever you do have. Somewhere you have places where you can solve for missing numbers. (I see three things you can solve for immediately.) Once you have certain things solved for, you can insert those in other equations and solve for more. Eventually you get everything solved in this manner.
Give this a shot. Post your answers if you like. But if you do, can you re-do the balance sheet part given cause it's laid out in a very confusing way. (I don't know if you attempted columns but they don't show up.)
solergirl
Nov 21, 2009, 07:20 AM
Cash $
Accounts Receivable
Inventory
Plant assets
Total Assets
Notes and payables $100,000
Longterm debt
Common stock $100,000
Retained earnings $100,000
Total liabilities and capital
*Assume a 360-day year, and all sales on credit
Liquidity Ratios
1. Current Ratio
Total Current Assets =
Total Current Liabilities
2.Acid Test Ratio
Total Current Assets-Inventory = 1
Total Current Liabilities
Activity Ratios
1. Average Collection Period
Accounts Receivablex360= 18 days
Credit sales
2.Average Payment Period
Accounts payablex360
Credit Purchase
3.Inventory Turnover
Cost of Good Sold= 9
Inventory
4.Fixed Assets Turnover
Sales=
Fixed Assets
5.Assets Turnover
Sales=2.5 times
Total Assets
Debt Ratios
1.Total Debt to Total Assets
Total Debt=
Total Assets
2.Longterm Debt to Total Assets
Longterm Debt=
Total assets
3.Longterm Debt to Stockholders Equity
Longterm Debt= .5
Stockholders Equity
Profitability Ratios
1. Gross Profit Margin
Sales-Cost of Good Sold= 10%
Sales
I don't want the whole answer, just a clue to complete the rest because I honestly don't know how to start. I appreciate a lot the help.
rehmanvohra
Nov 21, 2009, 09:43 AM
Here is the clue:
You have the shareholders' equity calculate the long term debt using debt equity ratio
Long term Debt= .5
Stockholders Equity
Now you have the total assets since the total liabilities and equity must be equal to total assets
With the help of total assets calculate sales using total asset turnover ratio.
Now that you have sales figure it is easy to calculate gross margin and cost of goods sold.
Calculate accounts receivable and inventory using collection period and inventory turnover ratios.
The figures should now fall into spaces and you can complete the rest of the assignment.
solergirl
Nov 21, 2009, 01:13 PM
Thank You, it was very useful!