# Profitability Ratios Bryce Company manufactures pet supplies

Question:

Profitability Ratios Bryce Company manufactures pet supplies. However, Bryce’s electronic accounting system recently crashed and, unfortunately, only a partial recovery of the company’s year-end accounting records (which included several profitability ratios) was possible. As a result, Bryce’s controller, a bright young CMA named Jeanette, must compute various lost financial account balances using the recovered information listed below. Long-term liabilities \$1,400,000 Ending inventory is the same as beginning inventory. Gross margin \$2,700,000 Net sales \$7,400,000 Accounts receivable turnover 40 Ending accounts receivable is the same as beginning accounts receivable. Total liabilities \$1,800,000 Current ratio 4 Cash \$540,000 Quick ratio 3.5 Inventory turnover in days 3.65 Required: Assume 365 days per year.

1. Calculate current liabilities. \$
2. Calculate current assets. \$
3. Calculate average accounts receivable. Round your answer to the nearest whole dollar, if required. \$
4. Calculate marketable securities. Round your answer to the nearest whole dollar, if required. \$
5. Calculate average inventory. \$

As given in Question:
Long term Liabilities = \$1,400,000
Total Liabilities = \$1,800,000
Net Sales = \$7,400,000
Gross Margin = \$2,700,000
Cash Balance = \$5,40,000
Account Receivable Turnover = 40
Current Ratio = 4
Quick Ratio = 3.5
Inventory Turnover In Days = 3.65
Ending Inventory = Beginning Inventory
Ending Accounts Receivable = Beginning Accounts Receivable

1. Calculation of Current Liabilities
Current Liability = Total Liabilities – Long Term Liabilities
= \$1,800,000 – \$1,400,000
= \$400,000
2. Calculation of Current Assets
Current Ratio = Current Assets / Current Liabilities
Therefore, Current Assets = Current Ratio * Current Liabilities
= 4 * \$400,000
= \$1,600,000
3. Calculation of Average Accounts Receivables
Accounts Receivable Turnover Ratio = Net Sales / Average Account Receivable
Therefore, Average Accounts Receivable = Net Sales / Accounts Receivable Turnover Ratio
= \$7,400,000 / 40
= \$185,000
4. Calculation of Marketable Securities
Quick Ratio = Quick Assets / Current Liabilities

Where,
Quick Assets = Cash + Accounts Receivable + marketable Securities
= \$540,000 + \$185,000 + Marketable Securities
= \$725,000 + Marketable Securities
Now putting figures into formula,
3.5 = (\$725,000 + Marketable Securities) / \$400,000
\$1,400,000 = \$725,000 + Marketable Securities

Hence,

Marketable Securities = \$1,400,000 – \$725,000
= \$675,000

1. Calculate Average Inventory
-As we Know,
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Where,

Cost of Goods sold = Net Sales – Gross Margin
= \$7,400,000 – \$2,700,000
= \$4,700,000
Inventory turnover Ratio = 365 Days / Inventory Turnover in Days
= 365 / 3.65
= 100

Now subsituting figures in the formula,
100 = \$4,700,000 / Average Inventory
Average Inventory = \$4,700,000 / 100
= \$47,000