Problem #1 The following balance sheet and income statement data is given: 31-Dec Yr 2021 Yr 2020 Cash $4,300 $3,700 Accounts receivable (net) 22,000 23,400 Inventories 10,000 7,000 Plant assets (net) 75,000 86,000 Total assets 111,300 120,100 Accounts payable 12,370 11,100 Bonds payable 70,000 70,000 Total liabilities 82,370 81,100 Common stock, $10 par 65,000 59,000 Paid-in capital 10,000 10,000 Retained earnings 24,300 20,600 Total stockholders’ equity 99,300 89,600 Net credit sales 100,000 Cost of goods sold 60,350 Gross profit 39,650 Net income 14,000 REQUIRED: Compute the following ratios for 2021. NOTE: Copy and paste the information below into the answer box first and then show your calculation steps for this problem to receive credits. (1) Accounts receivable turnover=____________________ (2) Inventory turnover=__________________ (3) Accounts payable turnover=__________________
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Problem #1
The following balance sheet and income statement data is given:
| 31-Dec | ||
| Yr 2021 | Yr 2020 | |
| Cash | $4,300 | $3,700 |
| 22,000 | 23,400 | |
| Inventories | 10,000 | 7,000 |
| Plant assets (net) | 75,000 | 86,000 |
| Total assets | 111,300 | 120,100 |
| Accounts payable | 12,370 | 11,100 |
| Bonds payable | 70,000 | 70,000 |
| Total liabilities | 82,370 | 81,100 |
| Common stock, $10 par | 65,000 | 59,000 |
| Paid-in capital | 10,000 | 10,000 |
| 24,300 | 20,600 | |
| Total |
99,300 | 89,600 |
| Net credit sales | 100,000 | |
| Cost of goods sold | 60,350 | |
| Gross profit | 39,650 | |
| Net income | 14,000 |
REQUIRED:
Compute the following ratios for 2021.
NOTE: Copy and paste the information below into the answer box first and then show your calculation steps for this problem to receive credits.
(1) Accounts receivable turnover=____________________
(2) Inventory turnover=__________________
(3) Accounts payable turnover=__________________
(4) Cash conversion cycle=__________________
(5) PPE turnover=__________________
(6) Gross profit margin=__________________
(7) Return on assets=__________________
(8) Return on equity=__________________
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