Question

Given below are selected balance sheet items and ratios as of June 30, 2019 for the More Debits than Credits School of Accounting which issues erasers instead of diplomas to its graduates.

total stockholders’ equity (includes 100,00 shares of no par common stock issued at $6 per share) $1,000,000

plant and equipment (net) 470,000

asset turnover rate per year (sales/total assets) 3 times

Inventory turnover rate per year 6 times

gross profit percentage 30%

Ratio of current liabilities to stockholders’ equity (there is no long term debt) 1.2 to 1

acid- test ratio (quick ratio) 0.8 to 1

Assume that balance sheet figures represent average amounts and that all sales are made on account.

Instructions: From the foregoing information, construct a balance sheet for the corporation as of June 30, 2019 in as much detail as the data permits.

Answer 1

Hey!

I know Balance sheet doesnt tally and I believe there is some wrong/missing information in the question.

Total assest as calculated above as per given information is 2,200,000 and invetory is half of total assets (Turnover ration of 6 against 3) which is 1,100,000.

Current Liabilities as per CL to equity ratio is 1.2 times which is 1,200,000

Quick Ratio says Current assets except inventory is 0.8 times of CL which is 960,000 so Total CA now become 2,060,000 so total assets become 2,530,000

As you can see, figures calculated as per above ratios don't quite add up.

Please get back for additional information

Thanks!