Please help me with required #2 A, B Only. 2. For both this year and last year: a. Present the balance sheet in common-size format for both this year and last year. b. Present the income statement in common-size format down through net income for both this year and last year. 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.)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Please help me with required #2 A, B Only.
2. For both this year and last year:
a. Present the
b. Present the income statement in common-size format down through net income for both this year and last year.
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 | ||
| 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 |
||||
| 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 | ||
| 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
b. The
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.)
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