Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several

Question

Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic de which he had secured patents. Although the company has been fairly profitable, it is now experie severe cash shortage. For this reason, it is requesting a $510,000 long-term loan from Gulfport Sta $105,000 of which will be used to bolster the Cash account and $405,000 of which will be modernize equipment. The company's financial statements for the two most recent years follow Sabin Electroni cs Comparative Balance Sheet This Year Last Year Assets Current assets Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses $ 74,000 490,000 955,000 23,000 160,000 19,000 310,000 605,000 23,000 Total current assets Plant and equipment, net 1,542,000 1,376,400 1,117,000 1,300,000 Total assets $2,918,400 $2,417,000 Liabilities and Stockholders Equity Liabilities: Current liabilities Bonds payable, 12% $ 750,000 $ 440,000 650,000 650,000 Total liabilities 1,400,000 1,090,000 Stockholders' equity: 720,000 798,400 720,000 Common stock, $15 par Retained earnings 607,000 1,327,000 $2,918,400 $2,417,000 Total stockholders' equity 1,518,400 Total liabilities and equity

Explanation / Answer

As per policy only first four questions will be answered

1 - a The amount of working capital

Working capital = current assets - current liabilities liabilities

This year = 1542000-750000 = 792000

Last year = 1117000-440000 = 677000

1-b the current ratio

Current Ratio = current assets / current liabilities

This year = 1542000/750000 = 2.06

Last year = 1117000/440000 = 2.54

1-c the acid-test ratio

Acid-test ratio = current assets - inventory - prepaid expenses / current liabilities

This year = (1542000-955000-23000) /750000 = 0.75

Last year = (1117000-605000-23000)/440000 =1.11

1-d the average collection period

Average collection period = 365*average accounts receivable / sales

Average accounts receivable = (beginning accounts receivable + ending accounts receivable) /2

This year = 365*((490000+310000)/2)/5050000 = 28.9 days

Last year = 365*((310000+260000)/2)/4380000= 23.8 days

This year last year Working capital 792000 677000

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