Question

​(Pro

forma balance sheet

construction​)

Use the following​ industry-average ratios to construct a pro forma balance sheet for​ Karen's Beauty​ Products, Inc.:

​(Pro

forma balance sheet

construction​)

Use the following​ industry-average ratios to construct a pro forma balance sheet for​ Karen's Beauty​ Products, Inc.:

Total asset turnover	1.6 times
Average collection period​ (assume 365-day​ year)	14 days
Fixed asset turnover	6 times
Inventory turnover​ (based on cost of goods​ sold)	3 times
Current ratio	1.9 times
Sales​ (all on​ credit)	​$3,000,000
Cost of goods sold	75​% of sales
Debt ratio	60​%

.

Fill in the assets section of the pro forma balance sheet.  ​(Round all items to the nearest​ dollar.)

Cash	​
Accounts receivable
Inventories
Net fixed assets
Total assets	​

.

Answer 1

Proforma Balance Sheet

Cash	509932
Accounts receivable	115068
Inventories	750000
Net fixed assets	500000
Total assets	1875000

1.Average collection period=365*Accounts receivable/Sales

14=365*A/R/3000000

AR= 14*3000000/365=115068.49

2. Fixed asset turnover= Sales/Fixed assets

6= 3000000/FA

FA= 500,000

3. Inventory turnover= COGS/Inventory

3= 75%*3000000/Inventory

Inventory= 75%*3000000/3=750000

4. Total assets turnover= Sales/ Total assets

1.6= 3000000/TA

TA= 1875000

5. Cash = Total assets- (Accounts receivable+fixed assets+inventory)

= 1875000- (115068.49+500000+750000)

=1875000- 1365068.49

=509931.51