I need to fill in the blanks on my income statement/balance sheet. Here is the information given:
The following data pertain to Pavilion Products Inc. (PPI):
PPI has outstanding debt in the form of accounts payable, 6-month notes payable, and long-term bonds. The notes carry a 10% interest rate and the bonds carry an 8.5% rate. Both the notes and bonds were outstanding for the entire year.
Retained earnings at the beginning of the year was $15,000.
The dividend payout ratio is 25%.
The net profit margin is 6%.
The return on equity (ROE) is 5.5%.
The inventory turnover ratio is 6 times.
The days sales outstanding is 102 days.
Hint: New retained earnings = old retained earnings + (new sales) * (net profit margin) * (1 – dividend payout ratio)
Given the information above and below, complete PPI's balance sheet and income statement. Submit your answers to your instructor for evaluation.
Pavilion Products Inc. Balance Sheet at Dec. 31, 200X
Cash $7,500 Accounts Payable _____
Inventories _____ Notes Payable $10,000
Accounts Receivable _____
Total Current Assets _____ Total Current Liabilities _____
Net Fixed Assets $54,000 Bonds Payable $30,000
Total Debt _____
Common Stock _____
Retained Earnings _____
Total Assets _____ Total Lia. & Eq _____
Pavilion Products Inc. Income Statement for Year Ended Dec. 31, 200X
Sales $25,000
Cost of Goods Sold ______
Gross Profit ______
Selling Expenses $2,700
General & Administrative Expenses $1,900
EBIT ______
Interest Expense ______
Net Profit before Taxes ______
Taxes $1,200
Net Profit ______
To fill in the blanks on the income statement and balance sheet, we need to calculate the missing values based on the given information. Let's start with the balance sheet:
1. Accounts Payable: Not given directly. We need to find it through the information provided.
- Given: Inventory turnover ratio = 6 times
- Formula: Accounts Payable = (Cost of Goods Sold / 365) * Days Sales Outstanding
- Substituting the given values: Accounts Payable = (Cost of Goods Sold / 365) * 102
2. Inventories: Not given directly. We need to find it through the information provided.
- Given: Inventory turnover ratio = 6 times
- Formula: Cost of Goods Sold = Sales / Inventory turnover ratio
- Substituting the given values: Cost of Goods Sold = Sales / 6
3. Accounts Receivable: Not given directly. We need to find it through the information provided.
- Given: Days Sales Outstanding = 102 days
- Formula: Accounts Receivable = (Sales / 365) * Days Sales Outstanding
- Substituting the given values: Accounts Receivable = (Sales / 365) * 102
4. Total Current Assets:
- Total Current Assets = Cash + Inventories + Accounts Receivable
5. Total Current Liabilities:
- Total Current Liabilities = Accounts Payable + Notes Payable
6. Total Debt:
- Total Debt = Notes Payable + Bonds Payable
7. Common Stock: Not given directly. We need to find it through the information provided.
- Common Stock = Total Assets - Total Liability & Equity - Retained Earnings
Now, let's move on to the income statement:
8. Cost of Goods Sold:
- Given: Gross Profit Margin = 1 - Net Profit Margin = 1 - 0.06 = 0.94 (or 94%)
- Cost of Goods Sold = Sales * (1 - Gross Profit Margin)
9. Gross Profit:
- Gross Profit = Sales - Cost of Goods Sold
10. EBIT (Earnings Before Interest and Taxes):
- EBIT = Gross Profit - Selling Expenses - General & Administrative Expenses
11. Interest Expense:
- Given: Notes Payable Interest Rate = 10%, Bonds Payable Interest Rate = 8.5%
- Interest Expense = (Notes Payable * Notes Payable Interest Rate) + (Bonds Payable * Bonds Payable Interest Rate)
12. Net Profit before Taxes:
- Net Profit before Taxes = EBIT - Interest Expense
13. Net Profit:
- Given: Dividend Payout Ratio = 25%
- Net Profit = Net Profit before Taxes * (1 - Dividend Payout Ratio)
Now, let's calculate the missing values based on the given information and formulas:
Pavilion Products Inc. Balance Sheet at Dec. 31, 200X
Cash $7,500
Inventories [Calculated]
Accounts Payable [Calculated]
Accounts Receivable [Calculated]
Total Current Assets [Calculated]
Total Current Liabilities [Calculated]
Net Fixed Assets $54,000
Bonds Payable $30,000
Total Debt [Calculated]
Common Stock [Calculated]
Retained Earnings [Calculated]
Total Assets [Calculated]
Total Lia. & Eq [Calculated]
Pavilion Products Inc. Income Statement for Year Ended Dec. 31, 200X
Sales $25,000
Cost of Goods Sold [Calculated]
Gross Profit [Calculated]
Selling Expenses $2,700
General & Administrative Expenses $1,900
EBIT [Calculated]
Interest Expense [Calculated]
Net Profit before Taxes [Calculated]
Taxes $1,200
Net Profit [Calculated]
Let's calculate the missing values step by step.
To fill in the blanks on the income statement and balance sheet, we need to use the given information and apply relevant formulas.
1. Calculate the cost of goods sold:
Given the inventory turnover ratio of 6 times, we can calculate the average inventory by dividing the cost of goods sold by the inventory turnover ratio. We are given the sales amount of $25,000, so the cost of goods sold can be calculated as follows:
Cost of Goods Sold = Sales / Inventory Turnover Ratio
Cost of Goods Sold = $25,000 / 6
Cost of Goods Sold = $4,166.67
2. Calculate the gross profit:
Gross Profit = Sales - Cost of Goods Sold
Gross Profit = $25,000 - $4,166.67
Gross Profit = $20,833.33
3. Calculate EBIT (Earnings Before Interest and Taxes):
EBIT = Gross Profit - Selling Expenses - General & Administrative Expenses
EBIT = $20,833.33 - $2,700 - $1,900
EBIT = $16,233.33
4. Calculate interest expense:
Given the outstanding debt in the form of 6-month notes payable and long-term bonds, with interest rates of 10% and 8.5% respectively, we need additional information to calculate the interest expense. The total debt is not provided, so it cannot be calculated.
Now let's move on to completing the balance sheet:
1. Calculate accounts payable:
Since the accounts payable is not given, we cannot calculate it based on the given information.
2. Calculate inventories:
Since the average inventory is not given, we cannot directly calculate the inventory amount.
3. Calculate accounts receivable:
Given the days sales outstanding of 102 days, we can calculate the average accounts receivable by dividing the annual sales by the number of days in a year:
Accounts Receivable = (Sales / Number of Days in a Year) * Days Sales Outstanding
Accounts Receivable = ($25,000 / 365) * 102
Accounts Receivable = $7,013.70
4. Calculate total current assets:
Total Current Assets = Cash + Inventories + Accounts Receivable
Total Current Assets = $7,500 + Inventories + $7,013.70
Total Current Assets = $14,513.70 + Inventories
5. Calculate total current liabilities:
Given the notes payable amount of $10,000, we can calculate the accounts payable and then calculate the total current liabilities:
Accounts Payable = Notes Payable
Accounts Payable = $10,000
Total Current Liabilities = Accounts Payable
Total Current Liabilities = $10,000
6. Calculate total debt:
Since the total debt is not given, we cannot calculate it based on the given information.
7. Calculate common stock:
Common Stock is not given, so we cannot calculate it based on the given information.
8. Calculate retained earnings:
Given the retained earnings at the beginning of the year of $15,000 and the dividend payout ratio of 25%, we can use the formula provided in the hint to calculate the new retained earnings:
New Retained Earnings = Old Retained Earnings + (New Sales) * (Net Profit Margin) * (1 - Dividend Payout Ratio)
New Retained Earnings = $15,000 + ($25,000) * (0.06) * (1 - 0.25)
New Retained Earnings = $15,000 + $1,500
New Retained Earnings = $16,500
9. Calculate total assets:
Total Assets = Total Current Assets + Net Fixed Assets
Total Assets = ($14,513.70 + Inventories) + $54,000
Total Assets = $68,513.70 + Inventories
10. Calculate total liab. & eq. (liabilities and equity):
Total Liab. & Eq. = Total Current Liabilities + Total Debt + Common Stock + Retained Earnings
Total Liab. & Eq. = $10,000 + Total Debt + Common Stock + $16,500
Please note that without the total debt and the common stock values, some of the balance sheet items cannot be accurately calculated.