Exercise 1 up to 25 points Since financial and accounting ratios are the product of the relationship of various financial statement line items, it should be possible to recreate financial statements based on ratio results and knowledge of the amounts of a few financial statement line items The following is a list of ratios that reflect the company's results consistently achieved over recent years, Profit margin on sales 6.00% Return on assets 7.7196 Gross profit margin 30.00% Inventory tumover ratio 10.161 Receivables tumover ratio 7.531 Acid-test ratio 1.880 Current ratio 2.50 Return on equity 10.00% Debt to equity ratio 0.296 11.72 Times interest camed ratio In the margins of the lists, the following note have been had written 27.000 Net income (10,000) Short-term note 7,250 Prepaid expenses 16,500 G&A expenses All other current liabilities are trade accounts Property, plant, and equipment are the only noncurrent assets. 75,000 Current ratio Return on equity Debt to equity ratio Times interest earned ratio 2.50 10.00% 0.296 11.72 27,000 (10,000) 7,250 16,500 In the margins of the lists, the following note have been had written Net income Short-term nole Prepaid expenses G&A expenses All other current liabilities are trade accounts. Property, plant, and equipment are the only noncurrent assets, Prior years' depreciation Property, plant, and equipment has an estimated 20 year life. Notes payable are the only noncurrent liabilities. The effective interest rate on short-term notes The effective interest rate on long-term notes No investment securities Cash balance total 75,000 896 896 27,000 Based on the information presented above, complete the financial statements from which the ratios were calculated. Show your calculations to the work area to the right. Failure to show your work will result in no credit for this exercise. Based on the information presented above, complete the financial statements from which the ratios were calculated. Show your calculations to the work area to the right. Failure to show your work will result in no credit for this exercise. Balance Sheet Assets Cash Accounts receivable (net) Inventory Prepaid expenses and other current assets Current assets Property, plant, and equipment, gross less: Accumulated depreciation Property, plant, and equipment, net Total Assets Liabilities and Shareholders' Equity Accounts payable Short-term notes Current liabilities Notes payable Total Liabilities Shareholders' equity Party Liabilities and Shareholders' Equity Accounts payable Short-term notes Current liabilities Notes payable Total Liabilities Shareholders' equity Total Liabilities and Shareholders' Equity Income Statement Net sales Cost of goods sold Gross profit Operating expenses Operating income G&A expenses Depreciation expense Interest expense Income before income tax Income tax expense Net income
