Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Applicatio
ID: 2584499 • Letter: P
Question
Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Application [LO13-1, LO13-2, LO13-3, LO13-4]
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 $540,000 long-term loan from Gulfport State Bank, $120,000 of which will be used to bolster the Cash account and $420,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
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.
2.
For both this year and last year:
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).)
Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Application [LO13-1, LO13-2, LO13-3, LO13-4]
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 $540,000 long-term loan from Gulfport State Bank, $120,000 of which will be used to bolster the Cash account and $420,000 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 $ 86,000 $ 190,000 Marketable securities 0 22,000 Accounts receivable, net 529,000 340,000 Inventory 960,000 635,000 Prepaid expenses 22,000 26,000 Total current assets 1,597,000 1,213,000 Plant and equipment, net 1,631,600 1,410,000 Total assets $ 3,228,600 $ 2,623,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 820,000 $ 470,000 Bonds payable, 12% 800,000 800,000 Total liabilities 1,620,000 1,270,000 Stockholders' equity: Common stock, $15 par 810,000 810,000 Retained earnings 798,600 543,000 Total stockholders’ equity 1,608,600 1,353,000 Total liabilities and equity $ 3,228,600 $ 2,623,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,200,000 $ 4,470,000 Cost of goods sold 3,915,000 3,490,000 Gross margin 1,285,000 980,000 Selling and administrative expenses 661,000 556,000 Net operating income 624,000 424,000 Interest expense 96,000 96,000 Net income before taxes 528,000 328,000 Income taxes (30%) 158,400 98,400 Net income 369,600 229,600 Common dividends 114,000 93,000 Net income retained 255,600 136,600 Beginning retained earnings 543,000 406,400 Ending retained earnings $ 798,600 $ 543,000During 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.
2.
For both this year and last year:
Explanation / Answer
a.
b.
Sabin Electronics Common-Size Balance Sheets Normal Balance Sheets This Year Last Year This Year Last Year Assets Current Assets: Cash 2.7% 7.2% 86,000 190,000 Marketable securities 0.0% 0.8% 0 22,000 Account receivable, net 16.4% 13.0% 529,000 340,000 Inventory 29.7% 24.2% 960,000 635,000 Prepaid expenses 0.7% 1.0% 22,000 26,000 Total current assets 49.5% 46.2% 1,597,000 1,213,000 Plant and equipment, net 50.5% 53.8% 1,631,600 1,410,000 Total assets 100.0% 100.0% 3,228,600 2,623,000 Liabilities and Stockholders' Equity Liabilities: Current Liabilities 25.4% 17.9% 820,000 470,000 Bonds payable, 12% 24.8% 30.5% 800,000 800,000 Total Liabilities 50.2% 48.4% 1,620,000 1,270,000 Stockholders' equity: Common stock, $15 par 25.1% 30.9% 810,000 810,000 Retained earnings 24.7% 20.7% 798,600 543,000 Total stockholders' equity 49.8% 51.6% 1,608,600 1,353,000 Total liabilities and equity 100.0% 100.0% 3,228,600 2,623,000