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 $580,000 long-term loan from Gulfport State Bank, $140,000 of which will be used to bolster the Cash account and $440,000 of which will be used to modernize equipment. The companyâs financial statements for the two most recent years follow:
Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 100,000 $ 230,000 Marketable securities 0 26,000 Accounts receivable, net 581,000 380,000 Inventory 1,025,000 675,000 Prepaid expenses 26,000 30,000 Total current assets 1,732,000 1,341,000 Plant and equipment, net 1,759,600 1,450,000 Total assets $ 3,491,600 $ 2,791,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 840,000 $ 510,000 Bonds payable, 12% 650,000 650,000 Total liabilities 1,490,000 1,160,000 Stockholders' equity: Common stock, $15 par 930,000 930,000 Retained earnings 1,071,600 701,000 Total stockholdersâ equity 2,001,600 1,631,000 Total liabilities and equity $ 3,491,600 $ 2,791,000
Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,400,000 $ 4,590,000 Cost of goods sold 3,955,000 3,530,000 Gross margin 1,445,000 1,060,000 Selling and administrative expenses 669,000 564,000 Net operating income 776,000 496,000 Interest expense 78,000 78,000 Net income before taxes 698,000 418,000 Income taxes (30%) 209,400 125,400 Net income 488,600 292,600 Common dividends 118,000 97,000 Net income retained 370,600 195,600 Beginning retained earnings 701,000 505,400 Ending retained earnings $ 1,071,600 $ 701,000
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. (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 $330,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
e. The average sale period. (The inventory at the beginning of last year totaled $580,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
f. The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year were $2,660,000.) (Round your answers to 2 decimal places.)
h. The debt-to-equity ratio. (Round your answers to 3 decimal places.)
i. The times interest earned ratio. (Round your answers to 1 decimal place.)
j. The equity multiplier. (The total stockholdersâ equity at the beginning of last year totaled $1,621,000.) (Round your answers to 2 decimal places.)
2. For both this year and last year:
a. Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
b. Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
please explain and show how you got the solutions. thanks!
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 $580,000 long-term loan from Gulfport State Bank, $140,000 of which will be used to bolster the Cash account and $440,000 of which will be used to modernize equipment. The companyâs financial statements for the two most recent years follow: |
Sabin Electronics | ||||
Comparative Balance Sheet | ||||
This Year | Last Year | |||
Assets | ||||
Current assets: | ||||
Cash | $ | 100,000 | $ | 230,000 |
Marketable securities | 0 | 26,000 | ||
Accounts receivable, net | 581,000 | 380,000 | ||
Inventory | 1,025,000 | 675,000 | ||
Prepaid expenses | 26,000 | 30,000 | ||
Total current assets | 1,732,000 | 1,341,000 | ||
Plant and equipment, net | 1,759,600 | 1,450,000 | ||
Total assets | $ | 3,491,600 | $ | 2,791,000 |
Liabilities and Stockholders Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 840,000 | $ | 510,000 |
Bonds payable, 12% | 650,000 | 650,000 | ||
Total liabilities | 1,490,000 | 1,160,000 | ||
Stockholders' equity: | ||||
Common stock, $15 par | 930,000 | 930,000 | ||
Retained earnings | 1,071,600 | 701,000 | ||
Total stockholdersâ equity | 2,001,600 | 1,631,000 | ||
Total liabilities and equity | $ | 3,491,600 | $ | 2,791,000 |
Sabin Electronics | ||||
Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales | $ | 5,400,000 | $ | 4,590,000 |
Cost of goods sold | 3,955,000 | 3,530,000 | ||
Gross margin | 1,445,000 | 1,060,000 | ||
Selling and administrative expenses | 669,000 | 564,000 | ||
Net operating income | 776,000 | 496,000 | ||
Interest expense | 78,000 | 78,000 | ||
Net income before taxes | 698,000 | 418,000 | ||
Income taxes (30%) | 209,400 | 125,400 | ||
Net income | 488,600 | 292,600 | ||
Common dividends | 118,000 | 97,000 | ||
Net income retained | 370,600 | 195,600 | ||
Beginning retained earnings | 701,000 | 505,400 | ||
Ending retained earnings | $ | 1,071,600 | $ | 701,000 |
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. (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 $330,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
e. | The average sale period. (The inventory at the beginning of last year totaled $580,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
f. | The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.) |
g. | The total asset turnover. (The total assets at the beginning of last year were $2,660,000.) (Round your answers to 2 decimal places.) |
h. | The debt-to-equity ratio. (Round your answers to 3 decimal places.) |
i. | The times interest earned ratio. (Round your answers to 1 decimal place.) |
j. | The equity multiplier. (The total stockholdersâ equity at the beginning of last year totaled $1,621,000.) (Round your answers to 2 decimal places.) |
2. | For both this year and last year: |
a. | Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
b. | Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
please explain and show how you got the solutions. thanks!