Question

Total Current Liabil.HU Problem 974 k Inn has provided the following selected financial information: $100,000 choco Hibupili The New K Inn has provided the Balance Sheet Cash Property and equipment $2,000,000 Income Statement Room sales $1,500,000 Food sales 500,000 naldo Cost of food sold 150,000 boltozott Net income 200,000 Ratios Current ratio 1.4 Food inventory turnover 12 times bambini Average collection period 20 days Solvency ratio 2.5 on Assumptions: 1. The balance sheet amounts are the same at the beginning and end of the year. 2. All sales are credit sales. 3. A year has 365 days. 4. Current assets consist of cash, food inventory, and accounts receivable. 5. Cash equals $100,000. 6. Total assets consist of current assets and property and equipment. Required: do n lar 1. Calculate the amount of accounts receivable. 2. Calculate the amount of food inventory. 3. Calculate the amount of current liabilities. 4. Calculate the total amount of debt. 5. Calculate the total amount of owners' equity.

Answer 1

Working Notes: (amounts are in $)

1. Current Ratio = Current assets / Current Liabilities

                As Current ratio is 1.4, Current liabilities will be = Current assets/1.4

2. Food Inventory Turnover ratio = Cost of foods sold/ Average Inventory

                As Food inventory turnover ratio = 12 Times, Average inventory will be equals to

                Cost of food sales/12

3. Solvency ratio = (Net income +Depreciation)/Total debts

                As Solvency ratio = 2.5, Total debts = Net income/2.5

4. Average collection period = 365/Accounts receivable T/o Ratio

     As Average collection period is 20 days, Accounts receivable t/o ratio = 365/20 =18.25

5.Accounts receivable T/o ratio = Total credit sales / Average accounts receivable

                As accounts receivable t/o ratio = 18.25, Average accounts receivable= credit sales/18.25

Note : In the question it is mentioned that balance sheet figures are same for opening and closing, hence average values will be the value for closing date as well as opening date.

Requirement 1. Accounts receivable

Accounts Receivable = Credit sales/18.25 (see note 5)

                                                = 2000000/18.2

                                                =109589

Requirement 2   food inventory

Food inventory = 150000/12 (see note 2 above)

                                     = 12500

                                               

Requirement 3: Amount of Current liabilities

Total Current assets = cash+ food inventory+Accounts receivable

                                                = 100000+12500+109589

                                                = 222089

Current liabilities = 222089/1.4 (see note 1 above)

                                = 158635

Requirement 4 Total Debts

Total debts = 200000/2.5 ( see note 3 above )

                                = 80000

Requirement 5 : Amount of owners equity

Owners equity = Total assets- Current liabilities-Total non current debts

Total Assets = Current assets + PPE

                                = 222089+ 2000000

                                = 2222089

Owners equity = 2222089 -158635- 80000

                                = 1983454