Question
The accountant for Pilis Gadgets Shop prepared the following list of account balances from the entitys records for the year ended June 30, 2018: Sales
The accountant for Pilis Gadgets Shop prepared the following list of account balances from the entitys records for the year ended June 30, 2018:
Sales Revenue | $168,000 | Cash | $30,000 |
Accounts Receivable | 14,500 | Cost of Goods Sold | 45,000 |
Equipment | 48,000 | Pili, Capital | 27,000 |
Accounts Payable | 17,000 | Notes Payable
| 15,000 |
General & Admin Expense
| 50,000 | Inventory | 1,500 |
Selling Expense | 6,000 | Accumulated Depreciation | 12,000 |
Income Taxes Payable | 5,000 | Income Taxes Expense | 18,000 |
Interest Expense | 3,000 | Land | 28,000 |
Additional Information:
Last years ending inventory and accounts receivable balances were $3,500 and $10,000 respectively. Sales are on credit and the credit term is 45 days. Ms. Pili, the owner, praised the shop manager for successfully increased the sales level in the current year.
Calculated ratios and the industry averages ratios in the related period are provided below:
Ratio | Method of calculation |
Gross Profit Margin | Gross Profit x 100 = x% Sales revenue |
Profit Margin | Net Income afterTax x 100 = x% Sales revenue |
Inventory Turnover | Cost of Goods Sold = x times Average Inventory |
Required:
a. Present the Assets section of the business classified balance sheet. (4 marks)
b. Prepare a classified Income Statement for the business. (5 marks)
c. Calculate the business Gross Profit Margin, Profit Margin and Inventory Turnover ratios rounded to the nearest whole number. (3 marks)
d. Using the Gross Profit Margin and Profit Margin ratios calculated above, and the additional information provided, comment on the business profitability performance and relate that to the efficiency of its operations. (3 marks)
e. Using the information above, provide your analysis on the shop's inventory turnover ratio; relate your comments to its level of accounts receivable and credit policy. Do you agree with Ms. Pili appraising her sales manager for the successful increase in current year sales? (6 marks)
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