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Calculating Missing Balance Sheet Items Using Financial Ratios: A Step-By-Step Approach

Strengthen your financial ratio skills with this homework solution.

Suresh Kumar
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Calculating Missing Balance Sheet Items Using Financial Ratios: A Step-by-Step ApproachFrom the values of the different ratios that follow, calculate the missing balance sheet items andcomplete the balance sheet. (30 points) Sales $300,000Average collection period (days) : 55Inventory Turnover (days) 40 Debt to asset ratio 0.4 Current ratio 2 Total Asset turnover 1.5Fixed asset turnover 3 Assets Liabilities & Equity Cash $6,000 Accounts payable $6,000Accounts Receivable _____ Notes Payable _______ Inventory ______ Accrued Expenses $600Prepaid expenses _______ Total Current Liabilities ________ Total Current Assets ________Bonds Payable __________ Fixed Assets _________ Common Stock $16,000 Total Assets_________ Retained earnings ________ Total Liabilities & Equity _________Answer:To solve this problem, we need to work step by step using the information provided andthe financial ratios to calculate the missing balance sheet items.Given Information:•Sales= $300,000•AverageCollection Period (days)= 55 days•Inventory Turnover (days)= 40 days•Debt to Asset Ratio= 0.4•Current Ratio= 2•Total Asset Turnover= 1.5•Fixed Asset Turnover= 3Step 1: Calculate Accounts ReceivableThe Average Collection Period (ACP) is given by:ACP=AccountsReceivableSales×365\text{ACP} =\frac{\text{AccountsReceivable}}{\text{Sales}}\times 365Rearrange to solve forAccounts Receivable:AccountsReceivable=ACP×Sales365\text{Accounts Receivable} =\frac{\text{ACP}\times\text{Sales}}{365}Substitute the given values:AccountsReceivable=55×300,000365≈45,205.48\text{Accounts Receivable} =\frac{55\times300,000}{365}\approx 45,205.48

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