Question

I. Fill in the blanks. Cash P 30,000 P 120,000 Accounts Payable Notes Payable Marketable Securities 25,000 Accrued Wages 20,000 Accounts Receivable Total Current Liabilities Inventories Long-Term Debt Total Current Assets Total Liabilities Net Fixed Assets 600,000 TOTAL ASSETS Stockholder's Equity TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY The following financial data for 2016 are also available: 1. Sales totaled P1,800,000.00 2. The gross profit margin was 25% 3. Inventory turnover was 6.0 (use COGS/Ave. inventory formula) 4. There are 360 days in a year. 5. The average collection period was 40 days 6. The current ratio was 1.60 7. The total asset turnover ratio was 1.20. 8. The debt ratio was 60 percent. IV. Horizontal Analysis. Consider the following 2018 and 2019 income statements of Legaspi Company, then express them in common size percentages. Round percentages to one decimal point. Comment briefly on the changes between two years. LEGASPI COMPANY Income Statements For the Years Ended December 31, 2018 and 2019 2019 600,000 420,000 180,000 2018 500,000 331,000 169,000 Sales Cost of goods sold Gross Margin Operating expenses Selling expenses Administrative expenses Total operating expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income 87,000 46,800 133,800 46,200 1,200 45,000 13,500 31,500 72,500 51,00 123,500 45,500 1,500 44,000 13,200 30,800

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Answer 1

The above values can be determined using the formulas :

Current Ratio = Current Assets / Current Liabilities

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Debt Collection Period = Days in a year / Debtor's Turnover Ratio

Total Assets Turnover Ratio = Net Sales / Total Assets

Gross Profit Margin = Gross Profit / Net Sales *100

Debt Equity Ratio = Debt / Equity

Debtors turnover Ratio = Cost of Goods Sole / Average Debtors

1) Current Ratio = Current Assets / Current Liabilities

Current Liabilities = 1,20,000 + 20,000 = 1,40,000

Current Ratio = 1.60

Current Assets = Current Liabilities * Current Ratio = 1,40,000 * 1.60

= 2,24,000

2) Total Assets Turover Ratio = 1.20

Net Sales = 18,00,000

Total Assets = Net Sales / Total Assets turnover Ratio

= 18,00,000 / 1.20 = 15,00,000

3) Total Assets = Current Assets + Fixed Assets

15,00,000 = 2,24,000 + Fixed Assets

Fixed Assets = 12,76,000

4) Debt Equity Ratio = Debt / Equity

Debt Equity Ratio = 60%

Equity = 6,00,000

Debt = 3,60,000

5) Average Collection Period = Days in a year / Debtors Turover Ratio

Average Collection Period = 40 days

Days in a year = 360

Debtors Turover Ratio = 360/4 = 90

6) Debtors Turover Ratio = Sales / Average Debtors

Debtors Turover Ratio = 90

Sales = 18,00,000

Debtors = 20,000

7) Inventory= Total Current Assets - Cash - Marketable Securities - Accounts Receivable

= 2,24,000 - 30,000 - 25,000 - 20,000

= 1,49,000

8)Notes Payable = It is the balancing figure = 2,60,000

Answer 2

IV

                                                    Legaspi Company

                                                   Horizontal Analysis

Particular	2019	2018	Percentage Change
Sales	600,000	500,000	20%
Cost   of goods sold	420,000	331,000	27%
Gross   Margin	180,000	169,000	7%
Operating   Expenses
Selling   Expenses	87,000	72,500	20%
Administrative   Expenses	46,800	51,000	-8%
Total   Operating Expenses	133,800	123,500	8%
Net   Operating Expenses	46,200	45,500	2%
Interest   Expense	1,200	1,500	-20%
Net   Income before taxes	45,000	44,000	2%
Income   Taxes	13,500	13,200	2%
Net   Income	31,500	30,800	2%

 

The Horizontal analysis demonstrates that the company sales has increase 20% in 2019 due to which the net profit of the company increased 2%.