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 $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 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 $ 110,000 $ 250,000 Marketable securities   0   28,000 Accounts receivable, net   607,000   400,000 Inventory   1,045,000   695,000 Prepaid expenses   30,000   32,000 Total current assets   1,792,000   1,405,000 Plant and equipment, net   1,946,400   1,470,000 Total assets $ 3,738,400 $ 2,875,000 Liabilities and Stockholders Equity         Liabilities:         Current liabilities $ 850,000 $ 400,000 Bonds payable, 12%   750,000   750,000 Total liabilities   1,600,000   1,150,000 Stockholders' equity:         Common stock, $15 par   790,000   790,000 Retained earnings   1,348,400   935,000 Total stockholders’ equity   2,138,400   1,725,000 Total liabilities and stockholders' equity $ 3,738,400 $ 2,875,000     Sabin Electronics Comparative Income Statement and Reconciliation   This Year Last Year Sales $ 5,500,000 $ 4,650,000 Cost of goods sold   3,975,000   3,550,000 Gross margin   1,525,000   1,100,000 Selling and administrative expenses   673,000   568,000 Net operating income   852,000   532,000 Interest expense   90,000   90,000 Net income before taxes   762,000   442,000 Income taxes (30%)   228,600   132,600 Net income   533,400   309,400 Common dividends   120,000   99,000 Net income retained   413,400   210,400 Beginning retained earnings   935,000   724,600 Ending retained earnings $ 1,348,400 $ 935,000     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 2/10, 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 $350,000.) e. The average sale period. (The inventory at the beginning of last year totaled $600,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,790,000.) 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 $1,715,000.)   2. For both this year and last year: a. Present the balance sheet in common-size format. b. Present the income statement in common-size format down through net income.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 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 $ 110,000 $ 250,000
Marketable securities   0   28,000
Accounts receivable, net   607,000   400,000
Inventory   1,045,000   695,000
Prepaid expenses   30,000   32,000
Total current assets   1,792,000   1,405,000
Plant and equipment, net   1,946,400   1,470,000
Total assets $ 3,738,400 $ 2,875,000
Liabilities and Stockholders Equity        
Liabilities:        
Current liabilities $ 850,000 $ 400,000
Bonds payable, 12%   750,000   750,000
Total liabilities   1,600,000   1,150,000
Stockholders' equity:        
Common stock, $15 par   790,000   790,000
Retained earnings   1,348,400   935,000
Total stockholders’ equity   2,138,400   1,725,000
Total liabilities and stockholders' equity $ 3,738,400 $ 2,875,000
 

 

Sabin Electronics
Comparative Income Statement and Reconciliation
  This Year Last Year
Sales $ 5,500,000 $ 4,650,000
Cost of goods sold   3,975,000   3,550,000
Gross margin   1,525,000   1,100,000
Selling and administrative expenses   673,000   568,000
Net operating income   852,000   532,000
Interest expense   90,000   90,000
Net income before taxes   762,000   442,000
Income taxes (30%)   228,600   132,600
Net income   533,400   309,400
Common dividends   120,000   99,000
Net income retained   413,400   210,400
Beginning retained earnings   935,000   724,600
Ending retained earnings $ 1,348,400 $ 935,000
 

 

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 2/10, 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 $350,000.)

e. The average sale period. (The inventory at the beginning of last year totaled $600,000.)

f. The operating cycle.

g. The total asset turnover. (The total assets at the beginning of last year were $2,790,000.)

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 $1,715,000.)

 

2. For both this year and last year:

a. Present the balance sheet in common-size format.

b. Present the income statement in common-size format down through net income.

 

 

Req 1
Req 2A
Req 2B
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:
1.48
a. The amount of working capital.
b. The current ratio. (Round your answers to 2 decimal places.)
c. The acid-test ratio. (Round your answers to 2 decimal places.)
d. The average collection period. (The accounts receivable at the beginning of last year totaled $350,000.) (Use 365 days in a
year. Round your intermediate calculations and final answers to 2 decimal place.)
The
points
sale period. (The inventory at the beginning of last year totaled $600,000.) (Use 365 days in a year. Round
е.
average
your intermediate calculations and final answers to 2 decimal place.)
f. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
The total asset turnover. (The total assets at the beginning of last year were $2,790,000.) (Round your answers to 2
9.
decimal
h. The debt-to-equity ratio. (Round your answers to 2 decimal places.)
i. The times interest earned ratio. (Round your answers to 2 decimal places.)
j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,715,000.) (Round your answers
to 2 decimal places.)
places.)
Show less A
This Year
Last Year
a.
Working capital
942,000 O
1,005,000 O
b.
Current ratio
2.11 O
3.51 O
Acid-test ratio
717,000.00 X
0.84 X
C.
d.
Average collection period
678,000.00
days
1.70
days
e.
Average sale period
days
days
f.
Operating cycle
days
days
g.
Total asset turnover
h.
Debt-to-equity ratio
i.
Times interest earned ratio
li.
|Eguitv multiplier
Mc
Transcribed Image Text:Req 1 Req 2A Req 2B 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: 1.48 a. The amount of working capital. b. The current ratio. (Round your answers to 2 decimal places.) c. The acid-test ratio. (Round your answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $350,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) The points sale period. (The inventory at the beginning of last year totaled $600,000.) (Use 365 days in a year. Round е. average your intermediate calculations and final answers to 2 decimal place.) f. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) The total asset turnover. (The total assets at the beginning of last year were $2,790,000.) (Round your answers to 2 9. decimal h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) i. The times interest earned ratio. (Round your answers to 2 decimal places.) j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,715,000.) (Round your answers to 2 decimal places.) places.) Show less A This Year Last Year a. Working capital 942,000 O 1,005,000 O b. Current ratio 2.11 O 3.51 O Acid-test ratio 717,000.00 X 0.84 X C. d. Average collection period 678,000.00 days 1.70 days e. Average sale period days days f. Operating cycle days days g. Total asset turnover h. Debt-to-equity ratio i. Times interest earned ratio li. |Eguitv multiplier Mc
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