I just need help with REQ 2B Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $510,000 long-term loan from Gulfport State Bank, $105,000 of which will be used to bolster the Cash account and $405,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 74,000 $ 160,000 Marketable securities 0 19,000 Accounts receivable, net 490,000 310,000 Inventory 955,000 605,000 Prepaid expenses 23,000 23,000 Total current assets 1,542,000 1,117,000 Plant and equipment, net 1,376,400 1,300,000 Total assets $ 2,918,400 $ 2,417,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 750,000 $ 440,000 Bonds payable, 12% 650,000 650,000 Total liabilities 1,400,000 1,090,000 Stockholders' equity: Common stock, $15 par 700,000 700,000 Retained earnings 818,400 627,000 Total stockholders’ equity 1,518,400 1,327,000 Total liabilities and stockholders' equity $ 2,918,400 $ 2,417,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,050,000 $ 4,380,000 Cost of goods sold 3,885,000 3,460,000 Gross margin 1,165,000 920,000 Selling and administrative expenses 655,000 550,000 Net operating income 510,000 370,000 Interest expense 78,000 78,000 Net income before taxes 432,000 292,000 Income taxes (30%) 129,600 87,600 Net income 302,400 204,400 Common dividends 111,000 90,000 Net income retained 191,400 114,400 Beginning retained earnings 627,000 512,600 Ending retained earnings $ 818,400 $ 627,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 3/10, n/30. All sales are on account. Required: 1. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: a. The amount of working capital. b. The current ratio. c. The acid-test ratio. d. The average collection period. (The accounts receivable at the beginning of last year totaled $260,000.) e. The average sale period. (The inventory at the beginning of last year totaled $510,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,397,000.) h. The debt-to-equity ratio. i. The times interest earned ratio. j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,317,000.) b. Present the income statement in common-size format down through net income for both this year and last year.

I just need help with REQ 2B Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $510,000 long-term loan from Gulfport State Bank, $105,000 of which will be used to bolster the Cash account and $405,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 74,000 $ 160,000 Marketable securities 0 19,000 Accounts receivable, net 490,000 310,000 Inventory 955,000 605,000 Prepaid expenses 23,000 23,000 Total current assets 1,542,000 1,117,000 Plant and equipment, net 1,376,400 1,300,000 Total assets $ 2,918,400 $ 2,417,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 750,000 $ 440,000 Bonds payable, 12% 650,000 650,000 Total liabilities 1,400,000 1,090,000 Stockholders' equity: Common stock, $15 par 700,000 700,000 Retained earnings 818,400 627,000 Total stockholders’ equity 1,518,400 1,327,000 Total liabilities and stockholders' equity $ 2,918,400 $ 2,417,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,050,000 $ 4,380,000 Cost of goods sold 3,885,000 3,460,000 Gross margin 1,165,000 920,000 Selling and administrative expenses 655,000 550,000 Net operating income 510,000 370,000 Interest expense 78,000 78,000 Net income before taxes 432,000 292,000 Income taxes (30%) 129,600 87,600 Net income 302,400 204,400 Common dividends 111,000 90,000 Net income retained 191,400 114,400 Beginning retained earnings 627,000 512,600 Ending retained earnings $ 818,400 $ 627,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 3/10, n/30. All sales are on account. Required: 1. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: a. The amount of working capital. b. The current ratio. c. The acid-test ratio. d. The average collection period. (The accounts receivable at the beginning of last year totaled $260,000.) e. The average sale period. (The inventory at the beginning of last year totaled $510,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,397,000.) h. The debt-to-equity ratio. i. The times interest earned ratio. j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,317,000.) b. Present the income statement in common-size format down through net income for both this year and last year.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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I just need help with REQ 2B

Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $510,000 long-term loan from Gulfport State Bank, $105,000 of which will be used to bolster the Cash account and $405,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:

Sabin Electronics
Comparative Balance Sheet
	This Year	Last Year
Assets
Current assets:
Cash	$	74,000	$	160,000
Marketable securities		0		19,000
Accounts receivable, net		490,000		310,000
Inventory		955,000		605,000
Prepaid expenses		23,000		23,000
Total current assets		1,542,000		1,117,000
Plant and equipment, net		1,376,400		1,300,000
Total assets	$	2,918,400	$	2,417,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	750,000	$	440,000
Bonds payable, 12%		650,000		650,000
Total liabilities		1,400,000		1,090,000
Stockholders' equity:
Common stock, $15 par		700,000		700,000
Retained earnings		818,400		627,000
Total stockholders’ equity		1,518,400		1,327,000
Total liabilities and stockholders' equity	$	2,918,400	$	2,417,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year	Last Year
Sales	$	5,050,000	$	4,380,000
Cost of goods sold		3,885,000		3,460,000
Gross margin		1,165,000		920,000
Selling and administrative expenses		655,000		550,000
Net operating income		510,000		370,000
Interest expense		78,000		78,000
Net income before taxes		432,000		292,000
Income taxes (30%)		129,600		87,600
Net income		302,400		204,400
Common dividends		111,000		90,000
Net income retained		191,400		114,400
Beginning retained earnings		627,000		512,600
Ending retained earnings	$	818,400	$	627,000

During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 3/10, n/30. All sales are on account.

Required:

1. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year:

a. The amount of working capital.

b. The current ratio.

c. The acid-test ratio.

d. The average collection period. (The accounts receivable at the beginning of last year totaled $260,000.)

e. The average sale period. (The inventory at the beginning of last year totaled $510,000.)

f. The operating cycle.

g. The total asset turnover. (The total assets at the beginning of last year were $2,397,000.)

h. The debt-to-equity ratio.

i. The times interest earned ratio.

j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,317,000.)

b. Present the income statement in common-size format down through net income for both this year and last year.

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