Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several
ID: 340523 • 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 $680,000 long-term loan from Gulfport State Bank, $190,000 of which will be used to bolster the Cash account and $490,000 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 3/10, n/30. All sales are on account.
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:
The average collection period. (The accounts receivable at the beginning of last year totaled $430,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
The total asset turnover. (The total assets at the beginning of last year were $3,150,000.) (Round your answers to 2 decimal places.)
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).)
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 $680,000 long-term loan from Gulfport State Bank, $190,000 of which will be used to bolster the Cash account and $490,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
Explanation / Answer
Answer : 1 a The amount of working capital (This year) =Current asset- Current liabilities = $2,009,000-1,650,000 $ 359,000.00 The amount of working capital (This year) =Current asset- Current liabilities = $1,640,000-1,200,00 $ 440,000.00 where, Current asset (This year) $ 2,009,000.00 Current asset (Last year) $ 1,640,000.00 Current liabilities (This year) $ 1,650,000.00 Current liabilities (Last year) $ 1,200,000.00 b. Current ratio (current Asset/Current Liability) This year =Current asset/Current liabilities = $2,009,000/1,650,000 $ 1.22 Last year =Current asset/ Current liabilities = $1,640,000/1,200,00 $ 1.37 c Acid-test Ratio Liquid Asset/Current Liability) This year =Liquid asset/Current liabilities = $2,009,000/1,650,000 0.51 Last year =Liquid asset/Current liabilities = $1,640,000/1,200,00 0.69 where, Liquid asset (This year) = 135,000+711,000 $ 846,000.00 Liquid asset (Last year) =330,000+15,000+480,000 $ 825,000.00 d Average collection period =360 days / Accounts receivable turnover ratio This year =360/9.91 36.34 where, Accounts receivable turnover ratio =Credit Sales/(Beginning accounts receivable+Ending accounts receivable)/2 =5,900,000/((711000+480000)/2) 9.91 Average collection period =360 days / Accounts receivable turnover ratio Last year =360/9.91 33.50 where, Accounts receivable turnover ratio =Credit Sales/(Beginning accounts receivable+Ending accounts receivable)/2 =4,890,000/((430000+480000)/2) 10.75