Question

Cadux Candy Company's income statement for the year ended December 31, 2021, reported interest expense of $3 million and income tax expense of $20 million. Current assets listed in its balance sheet include cash, accounts receivable, and inventory. Property, plant, and equipment is the company's only noncurrent asset. Financial ratios for 2021 are listed below. Profitability and turnover ratios with balance sheet items in the denominator were calculated using year-end balances rather than averages. Debt to equity ratio Current ratio Acid-test ratio Times interest earned ratio Return on assets Return on equity Profit margin on sales Gross profit margin (gross profit divided by net sales) Inventory turnover Receivables turnover 0.8 2.0 1.0 16 times 20% 36 10% 20% 8 times 21 times Required: Prepare a December 31, 2021, balance sheet for the Cadux Candy Company. (Enter your answers in millions. Round your intermediate calculations and final answer to the nearest whole million.) CADUX CANDY COMPANY Balance Sheet At December 31, 2021 (All values are in millions) Assets Current assets Cash

Answer 1

Starting from the data given/known,

Times Interest earned=EBIT/Interest expense=16 times

ie. EBIT/3 mln.=16 times

so, EBIT=16*3= $ 48 mlns.

Interest expense= 3 mln.

so, EBT= 48-3= $ 45 mlns.

Income tax expense= $ 20 mln.

So, net income= 45-20= $ 25 mlns.

Profit margin on sales= Net profit/sales=10%

ie. 25/Sales=10%

so, Sales=25/10%=

250

mlns.

Gross Profit margin on sales= Gross profit/sales=20%

ie. Gross profit/250=20%

Gross profit=250*20%=

50

Sales-Gross profit=COGS

ie.250-50= $ 200 mlns.

Inventory turnover=COGS/Inventory=8 times

ie.200/Inventory= 8

Inventory=200/8=

25

mlns.

Receivables Turnover=Net sales/Receivables=21 times

ie. 250/Receivables=21

so, Receivables=250/21=

12

mlns.

Current ratio=Current assets/Current Liabilities= 2

ie.( Cash+A/cs. Rec.+Inventory)/CL=2

ie. (Cash+12+25)/CL=2

& as it is given that

Acid test ratio=(Current assets-Inventory)/Current Liabilities= 2

ie.( Cash+12)/CL=1

ie. Solving as a quadratic equation,

(x+37)/CL=2

&

(x+12)/CL=1

ie.

x+37=2CL

x+12=1CL

cancelling the x out,

CL=37-12=25

25

mlns.

(CL=current Liabilities)

so, Cash=

x+12=1*25

Cash, x= 13

13

mlns.

Return on assets, ROA= Net profit/Total assets= 20%

ie.25 mlns./Total assets=20%

Total assets=25/20%=

125

Mlns.

Current assets= 50 mlns.

so, PP&E= 125-50=

75

mlns.

Return on Equity, ROE= Net profit/Total Equity= 36%

ie.25 mlns./Total Equity=36%

Total equity= 25/36%=

69.44

Mlns.

Debt/Equity=Total liabilities/Total equity=0.8

Total Liabilities=LT debt+Current Liabilities

so, (LT Debt+25)/69=0.8

LT debt= 30.2

mlns.

Caudex Candy Company
Balance Sheet
As at Dec. 31, 2021
Fig. in millions
Assets
Current assets
Cash	13
Accounts receivable	12
Inventory	25
Total current assets		50
Property,plant & equipment(net)		75
Total assets		125
Liabilities & Shareholders' Equity
Current Liabilities		25
Long-Term Liabilities		30
Shareholders' Equity		69
Total Liabilities & Shareholders' Equity		125