Johnson Corp. had the following financial results for the fiscal 2004 year: Current ratio - 2.00 Quick ratio - 1.25 Current liabilities - $100,000 Inventory turnover - 12 Gross profit % - 25 The only current assets are cash, accounts receivable, and inventory. The balance in these accounts has remained constant throughout the year. Johnson’s net sales for 2004 were: A) $300,000. B) $1,200,000. C) $900,000.
Fudge I mean B. Didn’t see it said Sales not COGS.
i’m getting B 900,000 is the COGS number that i get. Then X-900,000 = 0.25X X= 1,200,000
Current ratio = (cash + A/R + inventory)/ current liability = 2 meaning that current asset = $200,000 quick ratio = (cash + A/R) / current liability = 1.25 meaning that the numerator = $125,000 Combining the above you’ll get that inventory is $75,000 inventory turnover = COGS/avg inventory = 12 You’ll get that COGS = 900,000 Gross profit margin = (revenue - COGS) / revenue You’ll get that net sales or revenue is $1,200,000 Hope that helps
Edit: B Current Assets = 200,000 Cash + A/R = 125,000 => Inventory = 75,000 COGS = 75,000 * 12 = 900,000 Sales = 900,000 / .75 = 1,200,000
PS : just a quick question for those who’ve taken L1 exam. Is this type of questions really pop-up on the real exam?
Answer is B.
COGS/Ave Inv = 12 Ave Inv = 75,000 derived from CR/QR COGS/75,000 = 12 Solve for COGS = 900,000 Sales = X (COGS) = 900,000 Gross profit margin = 25% X = 900,000/0.75 Sales = 1,200,000
Thanks for the question - I liked this one.
Yeah, definitely a fun question. Kind of makes me feel like I’m actually starting to know some stuff.