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# vv-1 - Chapter 3 Answers 1 Cash Accounts receivable...

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Chapter 3 Answers 1. Cash 10,000 Accounts receivable 250,000 Inventory 240,000 Total Current assets 500,000 Net fixed assets 1,500,000 Total assets 2,000,000 Accounts payable 100,000 Long-term debt 400,000 Total liabilities 500,000 Common equity 1,500,000 Total liab & OE 2,000,000 *Solution: Start with Debt ratio=.25=Total Debt/Total Assets. Total Assets=2,000,000 (given), so Total Debt = .25*2,000,000=500,000 Total debt= 500,000 (above) so Long-term debt = 500,000-100,000=400,000. Current Ratio=5=Current Assets/Current Liabilities. Current Liabilities=100,000 so Current Assets = 500,000. Total Asset Turnover (Sales / Total Assets). From this you get Sales = 2,000000*1.5=3,000,000 Average Collection Period =30=Accounts Receivable/(Sales / # days per yr). Rearranging, Accounts Receivable=30*(Sales/ #days/yr)=30*(3,000,000/360)=250,000 **Here we make a quick Income Statement in order to find the COGS. We know that Sales-COGS=Gross Profit. Sales is 3,000,000 and the gross profit margin =.2=gross profit/sales. Gross Profit =0.2*3,000,000=600,000. 3,000,000-COGS=600,000 so COGS must = 2,400,000. Inventory Turnover=10=COGS/Inventory. Inventory then is COGS/10=2,400,000/10=240,000 Finally, since Total Current Assets = 500,000, and we don’t know Cash, Cash= 500,000-240,000-250,000=10,000 2. Current ratio = 1.75

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