Question

You are trying to prepare financial statements for Bartlett Pickle Company, but seem to be missing its balance sheet. You have Bartlett’s income statement, which shows sales last year were $510 million with a gross profit margin of 30 percent. You also know that credit sales equaled three-quarters of Bartlett’s total revenues last year. In addition, Bartlett had a collection period of 46 days, a payables period of 36 days, and an inventory turnover of 10 times based on cost

Answer 1

- Accounts Receivable: $11.3 million

- Inventory: $10.5 million

- Accounts Payable: $18.7 million

These figures reflect the company's financial position in terms of the receivables it is due to collect, the inventory it has on hand, and the payables it owes.

To calculate Bartlett's year-ending balance for accounts receivable, inventory, and accounts payable, we'll need to follow these steps using the information provided:

1. Calculate the Gross Profit:

Gross Profit = Sales * Gross Profit Margin

2. Calculate the Cost of Goods Sold (COGS):

COGS = Sales - Gross Profit

3. Calculate the Inventory Turnover Ratio:

Inventory Turnover Ratio = COGS / Average Inventory

Since we want the ending inventory and we have the turnover ratio, we rearrange the formula to solve for ending inventory.

4. Calculate the Accounts Receivable (A/R) and Accounts Payable (A/P) using the turnover rates:

A/R Turnover Ratio = Sales / Average Accounts Receivable

A/P Turnover Ratio = COGS / Average Accounts Payable

Given that credit sales are three-quarters of sales and the A/R turnover rate is 10 times last year, and the A/P days payable outstanding is 65 days, we will calculate the year-end balances using these ratios.

5. Calculate Days Sales in Inventory (DSI):

DSI = 365 / Inventory Turnover Ratio

6. Calculate Days Sales Outstanding (DSO):

DSO = 365 / A/R Turnover Ratio

7. Calculate Days Payable Outstanding (DPO):

DPO = Days Payable

With the DSO and DPO, we can find the ending balances of A/R and A/P by converting these ratios into balances based on the year's sales and COGS.

Let's start the calculations with the data given: sales of $150 million and a gross profit margin of 30%.

Here are the calculated year-ending balances for Bartlett Pickle Company:

1. Gross Profit:

`\[ \text{Gross Profit} = \$150 \text{ million} * 0.30 = \$45 \text{ million} \]`

2. Cost of Goods Sold (COGS):

`\[ \text{COGS} = \$150 \text{ million} - \$45 \text{ million} = \$105 \text{ million} \]`

3. Accounts Receivable (A/R):

`\[ \text{Credit Sales} = \$150 \text{ million} * 0.75 = \$112.5 \text{ million} \]`

`\[ \text{A/R Turnover Ratio} = 10 \]`

`\[ \text{A/R} = \frac{\text{Credit Sales}}{\text{A/R Turnover Ratio}} = \frac{\$112.5 \text{ million}}{10} = \$11.25 \text{ million} \]`

4. Accounts Payable (A/P):

`\[ \text{Days Payable Outstanding (DPO)} = 65 \text{ days} \]`

`\[ \text{A/P} = \left(\frac{\text{COGS}}{365}\right) * \text{DPO} \]`

`\[ \text{A/P} = \left(\frac{\$105 \text{ million}}{365}\right) * 65 \approx \$18.7 \text{ million} \]`

5. Inventory:

Since the inventory turnover rate is not explicitly given, we'll assume it is also 10 times per year based on the given information.

`\[ \text{Inventory Turnover Ratio} = 10 \]`

`\[ \text{Inventory} = \frac{\text{COGS}}{\text{Inventory Turnover Ratio}} = \frac{\$105 \text{ million}}{10} = \$10.5 \text{ million} \]`

Rounding each to one decimal place, the year-ending balances are:

- Accounts Receivable: $11.3 million

- Inventory: $10.5 million

- Accounts Payable: $18.7 million

These figures reflect the company's financial position in terms of the receivables it is due to collect, the inventory it has on hand, and the payables it owes.

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