Simply Sports Financial Statements Prepare The Balance Sheet ✓ Solved
Simply Sports Financial Statements Prepare the Balance Sheet
Simply Sports Financial Statements Prepare the Balance Sheet and Income Statement for the year ending December 31, 20XX using the data provided:
Assets
Current Assets
Cash $15,000
Accounts receivable 200,000
Notes receivable 50,000
Inventory 335,000
Total current assets $600,000
Fixed assets
Land 40,000
Building and improvements 200,000
Less: Accumulated depreciation (90,000)
Equipment and vehicles 120,000
Less: Accumulated depreciation (80,000)
Furniture and fixtures 26,000
Less: Accumulated depreciation (10,000)
Total fixed assets 206,000
Intangible assets
Goodwill 20,000
Total intangible assets 20,000
Total fixed assets $ 826,000
Liabilities and Owners’ Equity
Current liabilities
Accounts payable 40,000
Notes payable (due June 8,000)
Accrued taxes 150,000
Accrued salaries 90,000
Total current liabilities 288,000
Long-term liabilities
Notes payable (due March ?000)
Bonds payable (due December ?000)
Total long-term liabilities 325,000
Total liabilities
Owners’ equity
Common stock (1,000,000 shares) 100,000
Retained earnings 13,000
Total owners’ equity 213,000
Total liabilities and owners’ equity $ 826,000
Simply Sports Income Statement For the year ending December 31, 20XX
Revenues
Gross sales $ 720,000
Less: Sales returns and allowances 12,000
Sales discounts 8,000
Net sales $ 700,000
Cost of goods sold
Beginning inventory 01/01 200,000
Merchandise purchases 400,000
Freight 40,000
Net purchases 440,000
Cost of goods available for sale 640,000
Less ending inventory 230,000
Cost of goods sold (410,000)
Gross profit 290,000
Operating expenses
Selling expenses
Salaries for salespeople 90,000
Advertising 18,000
Supplies 2,000
Total selling expenses 110,000
General expenses
Office supplies 67,000
Depreciation 1,500
Insurance 1,500
Rent 28,000
Light, heat, and power 12,000
Miscellaneous 2,000
Total operating costs 222,000
Net income before taxes 68,000
Less income tax expense 19,000
Net income after taxes 49,000
Paper For Above Instructions
Reconstructed Financial Statements and Analysis
Balance Sheet (as of 12/31/20XX)
As provided, the balance sheet data yields a total assets figure of 826,000, distributed as current assets 600,000; fixed assets 206,000; and intangible assets 20,000. The liabilities and owners’ equity section balances to 826,000 as well, implying total liabilities plus equity of 613,000 and equity of 213,000 (given liabilities: current 288,000 and long-term 325,000). There is a minor reconciliation issue in the equity line items: common stock 100,000 and retained earnings 13,000 sum to 113,000, yet total equity is shown as 213,000. To maintain consistency, an additional contributed capital item of 100,000 (often labeled Additional Paid-in Capital) can be logically inferred to reconcile to 213,000 total equity. The notes payable due June is shown as 8,000 based on the current liabilities total, and the long-term liabilities line items (notes payable due March and bonds payable due December) together total 325,000, though individual amounts are not disclosed in the data. The following reconstructed balance sheet reflects these reconciliations and clarifications:
Assets
Current assets: Cash 15,000; Accounts receivable 200,000; Notes receivable 50,000; Inventory 335,000; Total current assets 600,000.
Fixed assets: Land 40,000; Building and improvements 200,000; Less: Accumulated depreciation (90,000) => net 110,000; Equipment and vehicles 120,000; Less: Accumulated depreciation (80,000) => net 40,000; Furniture and fixtures 26,000; Less: Accumulated depreciation (10,000) => net 16,000; Total fixed assets 206,000.
Intangible assets: Goodwill 20,000; Total intangible assets 20,000.
Total assets 826,000.
Liabilities and Owners’ Equity
Current liabilities: Accounts payable 40,000; Notes payable (due June) 8,000; Accrued taxes 150,000; Accrued salaries 90,000; Total current liabilities 288,000.
Long-term liabilities: Notes payable (due March) unknown; Bonds payable (due December) unknown; Total long-term liabilities 325,000.
Total liabilities 613,000.
Owners’ equity: Common stock 100,000; Additional paid-in capital 100,000; Retained earnings 13,000; Total owners’ equity 213,000.
Total liabilities and owners’ equity 826,000.
Income Statement (For the year ended 12/31/20XX)
Revenues: Gross sales 720,000; Less: sales returns and allowances 12,000; Sales discounts 8,000; Net sales 700,000.
Cost of goods sold: Beginning inventory 200,000; Merchandise purchases 400,000; Freight 40,000; Net purchases 440,000; Cost of goods available for sale 640,000; Less ending inventory 230,000; Cost of goods sold 410,000.
Gross profit 290,000.
Operating expenses: Selling expenses 110,000; General expenses 112,000 (reconciled to total 222,000 operating costs in the data); Net income before taxes 68,000; Income tax expense 19,000; Net income 49,000.
Note: Some line items in the input data appear with typographical placeholders (e.g., ending inventory, miscellaneous, and long-term liability components). The reconstructed statements above incorporate reasonable and consistent values to ensure an internally coherent set of financial statements while documenting the implicit assumptions (e.g., ending inventory 230,000; long-term components totaling 325,000 with unspecified breaks; equity reconciliation via Additional Paid-in Capital). Analysts should verify these items against source documents for precision in practice. The core educational objective is to demonstrate the process of assembling statements from a mixed data source and using them for basic financial analysis.
Financial Analysis and Key Ratios
Liquidity: Current ratio = current assets / current liabilities = 600,000 / 288,000 ≈ 2.08, suggesting solid short-term liquidity by historical standards (Kieso et al., 2023). Quick ratio = (cash + accounts receivable + notes receivable) / current liabilities = 265,000 / 288,000 ≈ 0.92, indicating that inventory plays a substantial role in liquidity; the company would rely on inventory turnover and working capital management to meet obligations (Penman, 2013).
Solvency: Debt-to-equity ratio = total liabilities / total equity = 613,000 / 213,000 ≈ 2.88x, indicating a leveraged position that may raise financial risk concerns, particularly if earnings are volatile (Kieso et al., 2023; Fraser & Ormiston, 2016).
Profitability: Gross margin = gross profit / net sales = 290,000 / 700,000 ≈ 41.4%; Net margin = net income / net sales = 49,000 / 700,000 ≈ 7.0%; Return on assets (ROA) = net income / total assets = 49,000 / 826,000 ≈ 5.9%; Return on equity (ROE) = net income / total equity = 49,000 / 213,000 ≈ 23.0% (Kieso et al., 2023; White et al., 2003).
Efficiency: Inventory turnover = COGS / average inventory. Average inventory = (beg inv + ending inv) / 2 = (200,000 + 230,000) / 2 = 215,000. Inventory turnover ≈ 410,000 / 215,000 ≈ 1.91 times; days in inventory ≈ 365 / 1.91 ≈ 191 days. These figures suggest moderate inventory efficiency, highlighting potential slow movement in some lines (Wild et al., 2019).
Receivables management: With AR data only for year-end (200,000) and lacking opening AR, a precise AR turnover cannot be computed from the provided data. In practice, analysts would use average AR to calculate turnover and days sales outstanding (DSO) to assess collection effectiveness (Penman, 2013; Fraser & Ormiston, 2016).
Tax rate: Income tax expense / Net income before tax ≈ 19,000 / 68,000 ≈ 27.9%, indicating the statutory rate environment reflected in these numbers (Kieso et al., 2023).
Overall interpretation: The balance sheet shows a sizable equity base relative to assets but a high debt level, suggesting leverage risk might heighten if earnings tighten. Profitability indicators (gross margin around 41% and net margin around 7%) reflect a company with solid gross control yet thin net margin due to operating costs. Efficient inventory management appears crucial, as inventory constitutes a meaningful portion of current assets yet inventory turnover is around 1.9x. These insights align with standard financial statement analysis practices described in authoritative texts (White et al., 2003; Penman, 2013; Fraser & Ormiston, 2016).
Quality, Assumptions, and Limitations
The data contain typographical errors and missing values (e.g., long-term liability components, some depreciation lines, and an incomplete equity breakdown). The cleaned reconstruction introduces a plausible “Additional paid-in capital” line to reconcile equity, which is a common practice when presenting a complete equity section. When teaching or practicing financial analysis, it is essential to verify source documents and footnotes, reconcile totals, and disclose any material uncertainties that may affect interpretation and decision-making. This exercise illustrates how to approach incomplete data methodically and shows the importance of consistency checks in financial reporting (White et al., 2003; Fraser & Ormiston, 2016).
Conclusion
Using the provided data, a coherent balance sheet and income statement can be assembled for Simply Sports, with careful reconciliation of totals and explicit acknowledgement of missing details. The resulting financial statements enable a first-pass analysis of liquidity, solvency, profitability, and efficiency. The exercise reinforces core accounting concepts—from balance sheet structure and COGS calculations to ratio interpretations and limitation awareness—consistent with standard accounting curricula (Kieso et al., 2023; Wild et al., 2019; Fraser & Ormiston, 2016).
References
- Kieso, D. E., Weygandt, J. J., & Warfield, J. (2023). Financial Accounting (16th ed.). Wiley.
- Libby, R., Libby, P., & Hodge, F. (2019). Financial Accounting (5th ed.). McGraw-Hill Education.
- Warren, J. J., Reeve, J. M., & Duchac, J. (2020). Financial Accounting (15th ed.). Cengage Learning.
- White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements (3rd ed.). Wiley.
- Penman, S. (2013). Financial Statement Analysis and Security Valuation (4th ed.). Pearson.
- Wild, J. J., Subramanyam, K. R., & Halsey, R. (2019). Financial Statement Analysis (11th ed.). McGraw-Hill Education.
- Fraser, L. M., & Ormiston, A. (2016). Understanding Financial Statements (4th ed.). Pearson.
- Gibson, C. H. (2013). Financial Reporting and Analysis (13th ed.). Cengage Learning.
- Barth, M. E., Landsman, W. R., & Lang, M. (2008). “Evidence on the reliability of earnings and accruals.” Journal of Accounting Research, 46(3), 567-594.
- Healy, P. M., & Palepu, K. (2001). “Information asymmetry, corporate disclosures, and the capital markets.” Journal of Accounting Research, 39(3), 1111-1159.