Question

Exercise 18-12 Panza Corporation experienced a fire on December 31, 2020, in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances. December 31, 2020 December 31, 2019 Cash Accounts receivable (net) Inventory Accounts payable Notes payable Common stock, $100 par Retained earnings $ 31,000 73,500 201,000 51,500 25,000 393,000 100,000 $ 12,000 127,000 174,000 94,500 61,500 393,000 100,500 Additional information: 1. 2. 3. The inventory turnover is 2.4 times. The return on common stockholders' equity is 22%. The company had no additional paid-in capital. The accounts receivable turnover is 8.6 times. The return on assets is 12.5%. Total assets at December 31, 2019, were $620,000. 5.

Answer 1

a)	Cost of goods sold
	Inventory turnover ratio = 2.4 times
	Inventory turnover ratio = Cost of goods sold/Average inventory
	Average inventory = (Opening inventory + Closing Inventory)/2
	Average inventory = (174000 + 201000)/2
	Average inventory = 187500
	Inventory turnover ratio = Cost of goods sold/Average inventory
	2.4= Cost of goods sold/187500
	Cost of goods sold = 187500*2.4
	Cost of goods sold = 187500*2.4
	Cost of goods sold = 450000
b)	Net Credit sales
	For calculating net credit sales, we are using the Accounts receivables turnover ratio
	Acccounts receivable turnover ratio = Net credit sales/ Average receivables
	Average Receivables = (Opening receivables+Closing Receivables)/2
	Average Receivables = (127000+73500)/2
	Average Receivables = 100250
	Acccounts receivable turnover ratio = Net credit sales/ Average receivables
	8.6= Net credit sales/100250
	Net Credit sales = 100250*8.6
	Net Credit sales = 862150
c)	Net income for 2020
	For calculating net income, we are using return on common shareholder's equity
	Return on common shareholder's Equity = Net income/Average shareholder's equity
	Average shareholders Equity = (Opening common stock + Opening retained earnings + Closing common stock + Closing retained earnings)/2
	Average shareholders Equity = (393000+100500+393000+100000)/2
	Average shareholders Equity = (393000+100500+393000+100000)/2
	Average shareholders Equity = 493250
	Return on common shareholder's Equity = 22%
	Return on common shareholder's Equity = Net income/Common stock
	22%= Net income/493250
	Net income = 493250*22%
	Net income for 2020 = 108515
d)	Total assets as at 31st Dec 2020
	Return on assets = Net income/Average Asseets
	Return on assets = 12.5%
	Net income = 108515
	Average Assets = Net income/Return on assets
	Average Assets = 108515/12.5%
	Average Assets = 904292
	Average Assets = (opening assets + closing assets)/2
	904292*2 = Opening assets + Closing assets
	1808584= 620000+ Closing assets
	Closing assets = 1808584-620000
	Closing assets = 1188584
	Total assets as at 31st Dec 2020 = 1188584