Problem 1-6 (45 minutes)

ASSETS
Current assets:
Cash...................................
Accounts receivable.........
Inventory............................
Noncurrent assets.............
Total assets.........................

FOXX COMPANY
Balance Sheet
December 31, Year 2
LIABILITIES AND EQUITY
Current liabilities.....................
$ 75,000
Noncurrent liabilities...............
75,000
Total liabilities..........................
50,000
$300,000
Total equity...............................
$500,000
Total Liabilities and Equity.....

Supporting computations:
Note 1: Compute net income for Year 2
Sales
....................................................................$1,000,000
Cost of goods sold ....................................................................
Gross profit.................................................................................
Expenses.....................................................................................
Net income..................................................................................
Note 2: Return on end-of-year equity
Net income / End-of-year equity
50,000 / Equity
Equity = $250,000

= 0.20
=1
=1

Note 4: Accounts receivable turnover = Sales / Average accounts receivable

$1,000,000
16 = ($50,000 + ?) / 2

Ending accounts receivable = $75,000

Note 5: Days sales in inventory
36
Ending inventory

$250,000
$500,000

500,000 (50% of sales)

$ 500,000 (50% of sales)
450,000 (given)
$ 50,000

= 20%
= 20%

Note 3: Total debt to total equity

Total debt / $250,000
Total debt = $250,000

$100,000
150,000
$250,000

= (Inventory x 360) / Cost of goods sold

= (Inventory x 360) / $500,000
= $50,000

Problem 1-6continued
Note 6:

Total assets

Current assets

Current ratio
2
Current liabilities

= Total liabilities + Total equity

= $250,000 + $250,000
= $500,000
= Total assets - Noncurrent assets
= $500,000 - $300,000
= $200,000
= Current assets Current liabilities
= $200,000 ?
= $100,000

Noncurrent liabilities= Total liabilities - Current liabilities

= $250,000 - $100,000
= $150,000
Note 7:

Cash
Inventory

= Current assets - Accounts receivable = $200,000 - $75,000 - $50,000

= $75,000