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We are given the following information for Pettit Corporation.

Sales (credit) $3,668,000

Cash 190,000

Inventory 913,000

Current liabilities 745,000

Asset turnover 1.4 times

Current ratio 2.6 times

Debt-to-assets ratio 35 %

Receivables turnover 7 times

Current assets are composed of cash, marketable securities, accounts receivable, and inventory.

Calculate the following balance sheet items: (Show all your workings and calculations)
a.Accounts receivable
b.Marketable securities
c.Capital assets
d.Long-term debt

1 Answer

3 votes

Given information:Sales (credit) = $3,668,000Cash = $190,000Inventory = $913,000Current liabilities = $745,000Asset turnover = 1.4 timesCurrent ratio = 2.6 timesDebt-to-assets ratio = 35 %Receivables turnover = 7 timesCurrent assets are composed of cash, marketable securities, accounts receivable, and inventory.To calculate the balance sheet items, we need to use the following formulas:Asset Turnover = Net Sales / Average Total AssetsReceivable Turnover = Net Sales / Average Net ReceivablesDebt to Asset Ratio = Total Debt / Total AssetsCurrent Ratio = Current Assets / Current Liabilitiesa. Accounts ReceivableGiven, Net Sales = $3,668,000Receivables Turnover = 7 timesNet Receivables = $ Net Sales / Receivables Turnover$= 3,668,000 / 7 = $524,000b. Marketable SecuritiesThe value of marketable securities is not given. Hence we cannot calculate the marketable securities value.c. Capital AssetsTotal Asset Turnover = 1.4 timesNet Sales = $3,668,000Total Assets = $Net Sales / Total Asset Turnover$= 3,668,000 / 1.4 = $2,620,000Capital Assets = Total Assets - Current Assets$= 2,620,000 - (190,000 + 913,000 + 524,000)$$= 993,000d. Long-term debtTotal Asset = Total Debt / Debt to Asset Ratio$= 2,620,000 / 0.35$$= 941,000$Current Liabilities = Current Ratio * Current Assets$= 2.6 * (190,000 + 913,000 + 524,000)$= 2.6 * 1,627,000$= $4,229,200Long-term Debt = Total Debt - Current Liabilities$= 941,000 - 745,000$= $196,000Therefore,Accounts Receivable = $524,000Marketable Securities = Not givenCapital Assets = $993,000Long-term Debt = $196,000

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