To prepare the balance sheet and income statement for Argo Sales Corporation for the year ending December 31, 2004, we will need to use the given financial data and equations.
Let's start with the income statement:
1. Net Sales:
Given: Gross profit margin = 40%
Net profit margin = 10%
Rate of selling expenses to net sales = 20%
Net Sales = Gross Profit / (1 - Selling Expense)
Since Gross Profit = Net Sales * Gross Profit Margin,
Net Sales = Net Profit / (1 - (Selling Expense / Net Sales))
Net Profit = Net Income = $120,000
Selling Expense = Rate of selling expenses to net sales * Net Sales
Plug in the values to calculate Net Sales:
Net Sales = $120,000 / (1 - (0.2 / Net Sales))
Solving this equation will give us the value of Net Sales.
2. Cost of Goods Sold:
Given: Gross profit margin = 40%
Gross Profit = Net Sales * Gross Profit Margin
Cost of Goods Sold = Net Sales - Gross Profit
3. Gross Profit:
Given: Gross profit margin = 40%
Gross Profit = Net Sales * Gross Profit Margin
4. Operating Expenses:
Given: Selling Expense = Rate of selling expenses to net sales * Net Sales
Operating Expenses = Selling Expense + Administration Expense
To calculate the above values, you will need to use the given financial data.
Now let's move on to the balance sheet:
1. Current Assets:
a) Cash: We know the quick-asset composition and Quick ratio.
Cash = Quick ratio * Quick Assets
b) Marketable Securities: We know the quick-asset composition and Quick ratio.
Marketable Securities = Quick ratio * Quick Assets
c) Accounts Receivable: We know the turnover and Net Sales.
Accounts Receivable = Net Sales / Accounts Receivable Turnover
d) Prepaid Expenses: Given data.
e) Inventory: We know the inventory turnover and Cost of Goods Sold.
Inventory = Cost of Goods Sold / Inventory Turnover
2. Long-Term Assets: Given data.
3. Total Assets: Total Assets = Current Assets + Long-Term Assets
4. Current Liabilities: Given data.
5. Long-Term Liabilities: Given data.
6. Stockholders' Equity: We know the debt/equity ratio and total liabilities.
Stockholders' Equity = Total Liabilities / Debt/Equity Ratio
7. Total Liabilities and Stockholders' Equity: Total Liabilities and Stockholders' Equity = Total Liabilities + Stockholders' Equity
Using the above calculations, you can prepare the balance sheet and income statement for Argo Sales Corporation for the year ending December 31, 2004.