Question

Take the following information on a company, and say what assets the company has and where the money came from to own those assets (its liabilities and equity) at the end of two years of operation (assume the principal repayment of debt has been made for year 2): The company has gross sales of $48 million per year, and the pattern of sales is even, i.e., there is no cyclical pattern of sales. Customers are large firms with a typical large-firm payment pattern. COGS for the business is 60% and is material only; all labour costs are in SG&A. Monthly payroll is $200,000. There is enough raw material on hand to support one month of manufacturing, and two months of actual production of finished goods is in the warehouse (remember that finished goods in inventory are carried on the books at the value of COGS, not the expected sale price). The company pays its suppliers 30 days after goods are received. The owners started the business with an initial capital injection of $5.6 million 25 months ago. The company borrowed $3 million of long-term debt, with the principal repayable in

I have no idea about how to write a balance sheet at all. thank you!

Answer 1

Balance Sheet at end of 2 years
Assets:	Million ($)	Calculations
Fixed Assets	7.84	=8-0.16
Cash	0	=0.6+1.5-2.4-4.8+2.4-0.6+0.16+3.14
Inventory-Raw material	2.4	=(48/12)*60%
Inventory-Finished Goods	4.8	=(48*2/12)*60%
Total	15.04
Equity and Liabilities:	Million ($)
Equity Capital	5.6
Cumulative Net Income-Dividend	1.5	=1.8-0.3
Total Equity	7.1
Long Term Debt	2.4	=3-0.6
Accounts Payable	2.4	=48/12*60%
Short Term Loan	3.14	Cash Deficiency
Total	15.04

1. Fixed Assets are larger.

Current Assets	$7.2 M
Fixed Assets	$7.84 M

2. Short Term Debt = $ 3.14 M

3. Working Capital: $1.66 M

Cash	0
Inventory-Raw material	2.4
Inventory-Finished Goods	4.8
Accounts Payable	-2.4
Short Term Loan	-3.14
Working Capital	1.66

4.

Short Term Debt will also reduce by $0.2M and will be $2.94 M.

Working Capital will incresae by $0.2M and will be $1.86 M and positive.

5.

Assets:	Million ($)	Calculations
Fixed Assets	7.84	=8-0.16
Cash	0.46	=0.6+1.5-1.2-2.4+2.4-0.6+0.16
Inventory-Raw material	1.2	=((48/12)*60%)/2
Inventory-Finished Goods	2.4	=((48*2/12)*60%)/2
Total	11.9
Equity and Liabilities:	Million ($)
Equity Capital	5.6
Cumulative Net Income-Dividend	1.5	=1.8-0.3
Total Equity	7.1
Long Term Debt	2.4	=3-0.6
Accounts Payable	2.4	=48/12*60%
Short Term Loan	0	Cash Deficiency
Total	11.9

Bank Borrowing will drop to 0.

Working capital will not Change:

Cash	0.46
Inventory-Raw material	1.2
Inventory-Finished Goods	2.4
Accounts Payable	-2.4
Short Term Loan	0
Working Capital	1.66