Access over 35 million academic & study documents

acc305_wk_2_integrating_case_5

Content type
User Generated
Type
Study Guide
Rating
Showing Page:
1/3
Integrang Case 5-23 on page 296


 !" 
#$
%&  '(
 '
" '
)*+
,)-*+
.)/0+
1  )2
,  )3*
#)4
)35
,$6)50+
76)589
()53
:;<
=>?5*000
=@#A?*000BC
=6
=D
=( #E+
=> 
=?5*000
,6<

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/3
6%$
%

Integrating Case 5-23
Calculations ($ in 000s):
a. Profit margin on sales = Net income ÷ Sales = 5%
Sales = $15 ÷ 5% = $300
b. Return on assets = Net income ÷ Total assets = 7.5%
Total assets = $15 ÷ 7.5% = $200
c. Gross profit margin = Gross profit ÷ Sales = 40%
Gross profit = $300 x 40% = $120
Cost of goods sold = Sales – Gross profit = $300 – 120 = $180
Balance Sheet
Assets
Cash $ 15,000 given
Accounts receivable (net) 12,000 (e)
Inventory 30,000 (d)
Prepaid expenses and other current assets 3,000 (i)
Current assets 60,000 (h)
Property, plant, and equipment (net) 140,000 (j)
$200,000 (b)
Liabilities and Shareholders’ Equity
Accounts payable $ 25,000 (g)
Short-term notes 5,000 given
Current liabilities 30,000 (f)
Bonds payable 20,000 (l)
Shareholders’ equity 150,000 (k)
$200,000 (b)
Income Statement
Sales $300,000 (a)
Cost of goods sold (180,000 ) (c)
Gross profit 120,000 (c)
Operating expenses (96,000) (o)
Interest expense (2,000) (m)
Tax expense (7,000 ) (n)
Net income $ 15,000 given

Sign up to view the full document!

lock_open Sign Up
Showing Page:
3/3

Sign up to view the full document!

lock_open Sign Up
Unformatted Attachment Preview
Integrating Case 5-23 on page 296 You are a new staff accountant with a large regional CPA firm, participating in your first audit. You recall from your auditing class that CPAs often use ratios to test the reasonableness of accounting numbers provided by the client. Since ratios reflect the relationships among various account balances, if it is assumed that prior relation- ships still hold, prior years' ratios can be used to estimate what current balances should approximate. However, you never actually performed this kind of analysis until now. The CPA in charge of the audit of Covington Pike Corporation brings you the list of ratios shown below and tells you these reflect the relationships maintained by Covington Pike in recent years. Profit margin on sales = 5% Return on assets = 7.5% Gross profit margin = 40% Inventory turnover ratio = 6 times Receivables turnover ratio = 25 Aci ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Great! Studypool always delivers quality work.

Studypool
4.7
Indeed
4.5
Sitejabber
4.4