The Following Given In Scrambled Order Are Accounts And Bala
The Following Given In Scrambled Order Are Accounts And Balances Fro
The following (given in scrambled order) are accounts and balances from the accounting records of Alleg, Inc., as of December 31, 2012, after the books were closed for the year. Prepare a classified balance sheet with a proper heading on a spreadsheet. For assets, use the classifications of current assets, plant and equipment, intangibles, and other assets. For liabilities, use the classifications of current liabilities and long-term liabilities. Compute the total asset turnover rate assuming that total revenues in 2012 were $682,500. Round to the nearest hundredth, e.g., 3.33. Assume that Alleg’s primary competitor has an asset turnover of 2.12. What does this tell you about Alleg’s asset management?
Paper For Above instruction
Alleg, Inc. as of December 31, 2012, presents a comprehensive snapshot of its financial position through a classified balance sheet, providing insight into its asset management efficacy relative to competitors. The preparation of this balance sheet involves systematic classification of its assets and liabilities, followed by the calculation of the total asset turnover ratio, which measures how effectively the company utilizes its assets to generate revenue.
Classification and Preparation of the Balance Sheet
To begin, assets are categorized into current assets, plant and equipment, intangibles, and other assets. Current assets include cash, marketable securities, accounts receivable, and inventory. These are assets expected to be liquidated or consumed within a year. Plant and equipment encompass land, buildings, machinery, and equipment, which are long-term fixed assets used in operations. Intangible assets are non-physical assets like goodwill and patents. Other assets include deferred income taxes and additional miscellaneous assets.
The totals for each classification are computed as follows: cash ($14,000), marketable securities ($17,000), accounts receivable ($26,000), and inventory ($33,000) sum to a current assets total of $90,000. Land and buildings are valued at $57,000, machinery and equipment at $120,000, and accumulated depreciation at $61,000. Subtracting depreciation from the gross equipment values yields net plant and equipment of ($57,000 + $120,000 - $61,000), which equals $116,000. Goodwill ($13,000) and patents ($9,000) are classified under intangibles, totaling $22,000. Other assets, including deferred income taxes ($18,000) and other assets ($45,000), sum to $63,000.
Liabilities are bifurcated into current and long-term. Current liabilities include accounts payable ($16,000) and current maturities of long-term debt ($11,000), totaling $27,000. Long-term liabilities encompass mortgages payable ($80,000), bonds payable ($65,000), and deferred income taxes ($18,000). Summing these yields total long-term liabilities of $163,000.
The company's total assets are the sum of current assets ($90,000), net plant and equipment ($116,000), intangibles ($22,000), and other assets ($63,000), totaling $291,000. The total liabilities are current liabilities ($27,000) plus long-term liabilities ($163,000), equaling $190,000. Including shareholders’ equity, originated from common stock ($12,000), additional paid-in capital ($38,000), and retained earnings ($33,000), the total equity amounts to $83,000, balancing the balance sheet.
Calculation of Asset Turnover Rate
The asset turnover ratio is calculated as:
\[
\text{Asset Turnover} = \frac{\text{Net Sales or Revenues}}{\text{Average Total Assets}}
\]
Given that the total revenues for 2012 were $682,500, and total assets are $291,000, the asset turnover ratio for Alleg, Inc., is approximately:
\[
\frac{682,500}{291,000} \approx 2.35
\]
Rounding to the nearest hundredth, the asset turnover rate is 2.35.
This ratio indicates that Alleg utilized its assets efficiently during 2012 by turning over its assets approximately 2.35 times to generate revenue, which is higher than its primary competitor’s asset turnover of 2.12. Such a higher ratio suggests superior asset management, meaning Alleg is more effective at maximizing revenue from its assets compared to the industry standard.
Implications of the Asset Management Comparison
Alleg’s higher asset turnover rate implies efficient asset utilization, potentially due to optimized inventory management, effective receivables collection, or more efficient use of fixed assets. This efficiency provides a competitive advantage, as Alleg can generate more sales per dollar of assets maintained. Conversely, a lower ratio, as seen for competitors, indicates underutilized assets or excess capacity, which may lead to higher operational costs relative to revenue.
Conclusion
The balanced and detailed classification on Alleg’s balance sheet reveals a well-structured financial position with efficient asset use, reflected in its high asset turnover ratio. Comparing this to industry benchmarks underscores Alleg’s operational strengths, providing valuable insights for management decision-making and investor confidence. Effective asset management is crucial for maintaining profitability and competitive positioning in the industry.
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