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Old Wednesday, June 30, 2010
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Default Q # 3, Paper 1

Solution
Balance Sheet as of December 31 2007
Cash $30,000
marketable securities 25,000
Accounts Receivable 200000
Inventories 3,00,000
Current Assets 555000

Net fixed assets 9,45,000



Total Assets 1500,000

Accounts Payable $120,000
Bank Loan 2,06,875
Accruals 20,000
Current Liabilities 3,46,875
Long term debts 5,53,725
Common Stock and retained earnings 600,000
Total Liabilities and Equity 1500,000
(W-1) Inventory turnover ratio=6.0

Inventory turnover ratio= sales/average inventories
6.0= 1800, 000/ average inventories
Average inventories= 1800, 000 /6.0
Average inventories= 300,000

(W-2) Average collection Period=40 days
Average collection Period=Average Account Receivable * 360 days/ sales
40 days= Average Account Receivables*360/18, 00,000
18, 00,000*40/360 = Average Account Receivables
Avg. Account Receivables= 200,000

(W-3) Total Asset Turnover Ration=1.20
1.20= sales/Total Assets
Total Asset = sales/TAT
=18, 00,000/1.20
=15, 00,000

(W-4) Fixed assets= Total Asset- Current Asset
=15, 00,000-5, 55,000
=9, 45,000

(W-5) Current Ratio= Current asset/Current Liabilities
1.60 =5, 55, 000/CL
CL= 5, 55, 000/1.60
= 3, 46,875

(W-6) Total debt = C liabilities +Long term debts
900,000 =3, 46,875 + ?
Long term Debt = 900,000 -3, 46,875
553185

(W-7)Total debt can be find out as
Total debt= Total Liabilities and Equity- Common Stock and retained earnings
900,000 =1500, 000-600,000

(W-8) Bank Loan= Current liabilities - Accounts Payable- Accruals
206875 =3, 46,875- 120,000-20,000

Provided information in question no 3, PAPER-1, are not correct, the actual data comprises as under (SOURCE Financial Management by Gitman)
Complete the 2007 balance sheet for Premier Industries using the information that follows it.
Balance Sheet as of December 31 2007
Cash & marketable securities 55,000
Accounts Receivable
Inventories
Current Assets
Net fixed assets
Total Assets

Accounts payable $120,000
Bank Loan ?
Accruals 20,000
Current Liabilities ?
Long term debts ?
Common Stock and retained earnings 600,000
Total Liabilities and Equity ?

Last edited by irum; Wednesday, June 30, 2010 at 05:55 PM.
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