Tarheel Furniture Company is planning to establish a wholly owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary's balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average.
Tarheel plans to make all sales on credit. All calculations assume a 365-day year.
In your computations, you should round all numbers to the nearest $1,000.
Based upon the industry average financial ratios presented here, complete the projected balance sheet for Tarheel's upholstery subsidiary.
Industry Averages
Current ratio 2:1
Quick ratio 1:1
Net profit margin ratio 5%
Average collection period 20 days
Debt ratio 40%
Total asset turnover ratio 2 times
Current liabilities/stockholders' equity 20%
Cash
Forecasted Upholstery Subsidiary Balance Sheet
Total current liabilities
Accounts receivable Inventory Total current assets Net fixed assets
Total assets
Long-term debt Total debt
Stockholders' equity
Total liabilities and stockholders' equity