Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several
ID: 2432064 • Letter: P
Question
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 $590,000 long-term loan from Gulfport State Bank, $145,000 of which will be used to bolster the Cash account and $445,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
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).)
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).)
Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 104,000 $ 240,000 Marketable securities 0 27,000 Accounts receivable, net 594,000 390,000 Inventory 1,035,000 685,000 Prepaid expenses 26,000 31,000 Total current assets 1,759,000 1,373,000 Plant and equipment, net 1,751,000 1,420,000 Total assets $ 3,510,000 $ 2,793,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 845,000 $ 520,000 Bonds payable, 12% 700,000 700,000 Total liabilities 1,545,000 1,220,000 Stockholders' equity: Common stock, $15 par 960,000 960,000 Retained earnings 1,005,000 613,000 Total stockholders’ equity 1,965,000 1,573,000 Total liabilities and equity $ 3,510,000 $ 2,793,000Explanation / Answer
Solution 1h:
Debt to Equity ratio = Total liabiities / Total Equity
This Year = $1,545,000 / $1,965,000 = 0.786
Last year = $1,220,000 / $1,573,000 = 0.776
Solution 1i:
Time interest earned ratio = EBIT / Interest =
This year = $814,000 / $84,000 = 9.7 times
Last Year = $514,000 / $84,000 = 6.1 times
Solution 1j:
Equity multiplier = Total Assets / stockholder's equity
This year = $3,510,000 / $1,965,000 = 1.79
Last year = $2,793,000 / $1,573,000 = 1.78
Solution 2:
Solution 3:
Sabin Electronics Common-Size Balance Sheets This Year Last Year Assets Current assets: Cash $104,000.00 3.0% $240,000.00 8.6% Marketable securities $0.00 0.0% $27,000.00 1.0% Accounts receivable, net $594,000.00 16.9% $390,000.00 14.0% Inventory $1,035,000.00 29.5% $685,000.00 24.5% Prepaid expenses $26,000.00 0.7% $31,000.00 1.1% Total current assets $1,759,000.00 50.1% $1,373,000.00 49.2% Plant and equipment, net $1,751,000.00 49.9% $1,420,000.00 50.8% Total assets $3,510,000.00 100.0% $2,793,000.00 100.0% Liabilities and Stockholders’ Equity Liabilities: Current liabilities $845,000.00 24.1% $520,000.00 18.6% Bonds payable, 12% $700,000.00 19.9% $700,000.00 25.1% Total liabilities $1,545,000.00 44.0% $1,220,000.00 43.7% Stockholders’ equity: Common stock, $15 par $960,000.00 27.4% $960,000.00 34.4% Retained earnings $1,005,000.00 28.6% $613,000.00 21.9% Total stockholders’ equity $1,965,000.00 56.0% $1,573,000.00 56.3% Total liabilities and equity $3,510,000.00 100.0% $2,793,000.00 100.0%