Question

e following ratios are computed from the financial statements of the Wattawa Company. Compute the missing amounts on the firm's financial statements. Quick Ratio 1.0 Current Ratio 1.5 Accounts Receivable Turnover 5 Debt Ratio 30% Times Interest Earned 3 Inventory Turnover 4 Note: 1) For ratios that call for an average balance, use the year-end value only. 2) All sales were on credit. Wattawa Company Income Statement For the year ended December 31, 2018 Sales ? Less: Cost of Goods Sold ? Gross Margin 500,000? Less: Operating Expenses ? E.B.I.T. 150,000? Less: Interest expense ? Net Income Before Taxes ? Less: Taxes @ 40% ? Net Income ? Wattawa Company Balance Sheet As of December 31, 2018 Cash ? Accounts Receivable ? Inventory ? Total Current Assets 750,000 Plant and Equipment, net ? Total Assets ? Accounts Payable (current liabilities) ? Bonds Payable ? Total Liabilities ? Stockholders' Equity Common Stock ? Retained Earnings 800,000 Total Stockholders' Equity ? Total Liabilities and Stockholders' Equity 2,000,000

How I can get the sales if the gross margin is not non?

Answer 1

Sales can be computed as follows

From Current Ratio and Quick ratio calculate Inventory

Form Inventory turnover ratio calculate Cost of goods sold

Cost of goods sold + Gross profit = Sales

Answer with working notes is given below

Income Statement Net Sales Less: Cost of goods sold Gross margin Less: Operating expenses EBIT Less: Interest EBT Less: Taxes at 40% Net Income $1,500,000 WN4 $1,000,000 WN 3 $500,000 $350,000 $150,000 $50,000 WN 7 $100,000 $40,000 $60,000 Balance Sheet Assets Current Assets Cash $200,000 Accounts Receivable $300,000 Inventory $250,000 Total Current Assets Plant and Equipment net Total Assets Liabilities and Stockholders Equity Current Liabilities Accounts payable WN 6 WN 5 WN 2 $750,000 $1,250,000 WN8 $2,000,000 $500,000 WN 1 Long term liabilities Bonds payable Total liabilities $100,000 WN 9 $600,000 WN10 Stockholders equity Equity Common stock $600,000 Retained earnings $800,000 Total Stockholders' Equity Total liabilities and Stockholders equity $1,400,000 $2,000,000 Working notes: 1 Current Ratio Current Assets Current Liabilities - 1.5 Current Liabilities = $750,000 1.5 $500,000 Quick Assets Current Assets( Excluding inventory) Current Liabilities $500,000 Current Assets( Excluding inventory) ($500,000 X 1) Total Current Assets Current Assets( Excluding inventory) Inventory $750,000 $500,000 $250,000 3 Inventory turnover Cost of Goods sold Closing inventory Cost of Goods sold = Closing inventory X 4 $250,000 X 4 =$1,000,000 Cost of Goods sold Gross profit Total Credit sales | $1,500.00 $1,000,000 $500,000 $1,500,000 Accounts receivable turnover Net Credit sales Average Accounts receivable Accounts receivable Net Credit sales Accounts receivable turnover $1,500,000 $300,000 6 Cash Total Current Assets Accounts receivable Inventory Cash $750,000 $300,000 calculated above $250,000 calculated above $200,000 Balancing number 7 Times interest earned EBIT Interest expense EBIT 3 3 times times ] Interest expense EBIT | $150,000 $150,000 3 $50,000 3 times 8 Plant and Equipment = Total Liabilities and stockholders equity-Total Current Assets $2,000,000-$750,000 = $1,250,000 9 Debt 30% (Total Liabilities/Total Assets)= 30% Total Liabilities = $2,000,000 *30% Total Liabilities = $600,000 Total liabilities Less: Current liabilities Bonds payable $600,000 $500,000 $100,000 10 Total Stockholders equity = Total Assets-Total liabilities $2,000,000-$600,000 = $1,400,000 Common equity= Total stockholders equity- Retained earnings $1,400,000 - $800,000 = $600,000