I am working on a problem that wants me to make a balance sheet and income statement for the Argo Sales Company based on some information given that I have no idea how to compute. I have been able to figure out how to do a ratio correctly if I am given the figures to plug into it. (Example: Debt ratio I can figure out if I have the liabilities and asset figures). I cannot figure out how to come up with the figures if the problem says the inventory turnover is 8 per year or the current ratio is 3 to 1 etc.

PROBLEM

Argo Sales Corporation has in recent years maintained the following relationships among the data on its financial statements:

Gross profit margin 40%
Net profit margin 10%
Rate of selling expenses to net sales 20%
Accounts receivable turnover 8 times per year
Inventory turnover 6 times per year
Quick-asset composition: 8% cash, 32% marketable securities, 60% accounts receivable
Acid-test ratio (Quick ratio) 2-to-1
Current ratio: 3-to-1
Asset turnover: 2 per year
Ratio of total assets to intangible assets 20-to-1
Ratio of accumulated depreciation to gross property, plant and equipment : 1-to-3
Ratio of accounts receivable to accounts payable: 1.5-to-1
Ratio of working capital to stockholders’ equity: 1-to-1.6
Debt/Equity ratio: 1-to-2

The corporation had a net income of $120,000 for 2004, which resulted in earnings of $5.20 per share of common stock. No common or preferred shares were sold or bought back during 2004. The corporation does not have minority share of earnings, equity income or non-recurring items. Additional information includes the following:

Capital stock authorized, issued (all in 1970), and outstanding:
Common, $10 per share per share, issued at 10% premium.
Preferred, 6% nonparticipating, $100 per share par value, issued at a 10% premium.
Market value per share of common at December 31, 2004: $78.
Preferred dividends paid in 2004: $3,000.
Times interest earned in 2004: 33.

The amounts of the following were the same at December 31, 2004, as at January 1, 2004: inventory, accounts receivable, 5% bonds payable – due 2013, total assets and total stockholders’ equity.

Assuming there is no income tax expense and specific depreciation expense, but still need the accumulated depreciation for balance sheet.

Administration expense, accrued expense payable and prepaid expenses are all backed in numbers.

All purchases and sales were on account. Assume the company uses direct write-off method to account for uncollectible accounts.

Required: Prepare in good form the balance sheet and income statement for the year ending December 31, 2004. Please show all calculations.

Thanks

Why did the balance sheet go to the yoga class?

To find its balance!

Okay, let's break down the problem step by step.

First, let's calculate the gross profit and net profit. The gross profit margin is given as 40%, which means gross profit is 40% of net sales. Since net profit margin is given as 10%, net profit is 10% of net sales. Let's assume net sales as X:

Gross Profit = 40% of X
Net Profit = 10% of X

Next, we can calculate the selling expenses. The rate of selling expenses to net sales is given as 20%, which means selling expenses are 20% of net sales:

Selling Expenses = 20% of X

Now, let's calculate the accounts receivable turnover. It is given as 8 times per year. Accounts receivable turnover is calculated as net credit sales divided by average accounts receivable. We don't have the figures for net credit sales and average accounts receivable, so we cannot directly calculate the accounts receivable balance.

Let's move on to inventory turnover. It is given as 6 times per year. Inventory turnover is calculated as cost of goods sold divided by average inventory. Again, we don't have the figures for cost of goods sold and average inventory, so we cannot directly calculate the inventory balance.

Next, let's calculate the quick assets. Quick assets are made up of cash, marketable securities, and accounts receivable. The composition is given as 8% cash, 32% marketable securities, and 60% accounts receivable. We don't have the figures for cash, marketable securities, and accounts receivable, so we cannot directly calculate the quick assets.

Moving on, the acid-test ratio (quick ratio) is given as 2-to-1. It is calculated as quick assets divided by current liabilities. Again, since we don't have the figures for quick assets and current liabilities, we cannot directly calculate the current liabilities.

The current ratio is given as 3-to-1. It is calculated as current assets divided by current liabilities. Again, we don't have the figures for current assets and current liabilities, so we cannot directly calculate the current liabilities.

The asset turnover is given as 2 per year. It is calculated as net sales divided by average total assets. Since we don't have the figures for net sales and average total assets, we cannot directly calculate the total assets.

The ratio of total assets to intangible assets is given as 20-to-1. It is calculated as total assets divided by intangible assets. Since we don't have the figures for total assets and intangible assets, we cannot directly calculate the intangible assets.

The ratio of accumulated depreciation to gross property, plant, and equipment is given as 1-to-3. It is calculated as accumulated depreciation divided by gross property, plant, and equipment. Since we don't have the figures for accumulated depreciation and gross property, plant, and equipment, we cannot directly calculate these values.

The ratio of accounts receivable to accounts payable is given as 1.5-to-1. It is calculated as accounts receivable divided by accounts payable. Since we don't have the figures for accounts receivable and accounts payable, we cannot directly calculate these values.

The ratio of working capital to stockholders' equity is given as 1-to-1.6. It is calculated as working capital divided by stockholders' equity. Since we don't have the figures for working capital and stockholders' equity, we cannot directly calculate these values.

Finally, the debt/equity ratio is given as 1-to-2. It is calculated as total liabilities divided by stockholders' equity. Since we don't have the figures for total liabilities and stockholders' equity, we cannot directly calculate these values.

Based on the given information, it seems like we don't have enough data to directly compute the figures required for the balance sheet and income statement. However, with additional information or the availability of key balances, we would be able to provide a more accurate response.

To prepare the balance sheet and income statement for Argo Sales Corporation for the year ending December 31, 2004, we will need to compute various figures based on the given information. Let's break down the process step by step:

1. Start with the balance sheet:
- Determine Total Assets: This figure is given to be the same at December 31, 2004, as at January 1, 2004.
- Determine Total Stockholders' Equity: This figure is given to be the same at December 31, 2004, as at January 1, 2004.
- Compute Long-term debt: You are given that the amount of 5% bonds payable due 2013 is the same at December 31, 2004, as at January 1, 2004.
- Compute Current Liabilities: Use the Current Ratio (3-to-1) and the Working Capital to Stockholders' Equity ratio (1-to-1.6) to determine Current Liabilities.
- Compute Accounts Payable: You are given the Ratio of Accounts Receivable to Accounts Payable (1.5-to-1), which can be used to find Accounts Payable.
- Compute Intangible Assets: Use the Ratio of Total Assets to Intangible Assets (20-to-1) to compute Intangible Assets.
- Compute Property, Plant, and Equipment: Use the Ratio of Accumulated Depreciation to Gross Property, Plant, and Equipment (1-to-3) to compute Accumulated Depreciation.
- Compute Long-term Investments: Subtract Total Assets, Intangible Assets, Property, Plant, and Equipment, Accumulated Depreciation, Current Liabilities, and Long-term debt from Total Assets.
- Compute Stockholders' Equity: Subtract Long-term debt, Current Liabilities, and Long-term Investments from Total Stockholders' Equity.

2. Move on to the income statement:
- Compute Net Sales: Use the Rate of Selling Expenses to Net Sales (20%) to compute Selling Expenses. Then, use the Gross Profit Margin (40%) to calculate Net Sales.
- Compute Cost of Goods Sold: Use the Gross Profit Margin (40%) and Net Sales to compute Cost of Goods Sold.
- Compute Gross Profit: Subtract Cost of Goods Sold from Net Sales.
- Compute Operating Expenses: Subtract Gross Profit from Net Sales.
- Compute Operating Income: Subtract Operating Expenses from Gross Profit.
- Compute Net Income: Use the Net Profit Margin (10%) and Net Sales to compute Net Income.

Once you've calculated all the necessary figures, you can use them to prepare the balance sheet and income statement in good form.

To prepare the balance sheet and income statement for the Argo Sales Company, you will need to calculate various figures based on the given information. Let's go step by step:

1. Gross Profit: Given that the Gross Profit Margin is 40%, we can calculate the Gross Profit. Gross Profit Margin is defined as (Gross Profit / Net Sales) * 100, so we rearrange the formula to find Gross Profit: Gross Profit = (40% * Net Sales).

2. Net Sales: Since we don't have the Net Sales figure directly provided, we can calculate it using the Net Profit Margin. Net Profit Margin is defined as (Net Income / Net Sales) * 100, so we rearrange the formula to find Net Sales: Net Sales = Net Income / (Net Profit Margin / 100).

3. Selling Expenses: Given that the Rate of Selling Expenses to Net Sales is 20%, we can calculate the Selling Expenses. Selling Expenses = (20% * Net Sales).

4. Accounts Receivable Turnover: Given that the Accounts Receivable Turnover is 8 times per year, we can calculate the Average Accounts Receivable. Average Accounts Receivable = Net Sales / (Accounts Receivable Turnover / Number of Periods).

5. Inventory Turnover: Given that the Inventory Turnover is 6 times per year, we can calculate the Average Inventory. Average Inventory = (Cost of Goods Sold / Inventory Turnover).

6. Quick Assets and Current Assets: Given the Quick-asset composition (8% cash, 32% marketable securities, 60% accounts receivable) and the Current Ratio (3-to-1), we can calculate the Quick Assets and Current Assets. Quick Assets = Current Assets * Quick Ratio = (3/4) * Current Assets.

7. Current Liabilities: Since the Current Ratio is 3-to-1, we know that the Current Liabilities is one-third of the Current Assets.

8. Total Assets: Given the Ratio of Total Assets to Intangible Assets (20-to-1), we can calculate the Intangible Assets as a percentage of Total Assets. Intangible Assets = Total Assets / (1 + Ratio).

9. Accumulated Depreciation: Given the Ratio of Accumulated Depreciation to Gross Property, Plant and Equipment (1-to-3), we can calculate the Gross Property, Plant, and Equipment as a percentage of Accumulated Depreciation. Gross Property, Plant, and Equipment = Accumulated Depreciation * Ratio.

10. Accounts Payable: Given the Ratio of Accounts Receivable to Accounts Payable (1.5-to-1), we can calculate the Accounts Payable. Accounts Payable = Accounts Receivable / Ratio.

11. Working Capital: Given the Ratio of Working Capital to Stockholders' Equity (1-to-1.6), we can calculate the Stockholders' Equity. Stockholders' Equity = Working Capital / Ratio.

12. Debt:Equity Ratio: Given the Debt:Equity Ratio (1-to-2), we can calculate the Total Liabilities. Total Liabilities = Debt/Equity Ratio * Stockholders' Equity. Then, we can calculate the Total Debt by subtracting Stockholders' Equity from Total Liabilities.

Now that we have calculated all the necessary figures, we can prepare the balance sheet and income statement by organizing the information into the appropriate categories. Make sure to include the calculated figures from the steps above in the corresponding sections of the balance sheet and income statement.

Note: It is important to double-check the calculations and logic used to ensure accuracy. I recommend referring to accounting textbooks or consulting with an accounting professional if you have any uncertainties or questions.