Problem 1318A CommonSize Statements and Financial Ratios for a Loan Application [LO131, LO132, LO133, LO134]
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 longterm 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 companyâs 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 stockholdersâ 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 $ 543,000
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.
This Year Last Year Working Capital
b. The current ratio. (Round your answers to 2 decimal places.)
This Year Last Year Current Ratio
c. The acidtest ratio. (Round your answers to 2 decimal places.)
This Year Last Year Acidtest ratio
d. The average collection period. (The accounts receivable at the beginning of last year totaled $290,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
This Year Last Year Average Collection Period days days
e. The average sale period. (The inventory at the beginning of last year totaled $540,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
This Year Last Year Average Sale Period Days Days
f. The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)
This Year Last Year Operating Cycle Days Days
g. The total asset turnover. (The total assets at the beginning of last year were $2,540,000.) (Round your answers to 2 decimal places.)
This Year Last Year Total Asset Turnover
h. The debttoequity ratio. (Round your answers to 3 decimal places.)
This Year LastYear Debttoequity ratio
i. The times interest earned ratio. (Round your answers to 1 decimal place.)
This Year Last Year Times interest earned ratio
j. The equity multiplier. (The total stockholdersâ equity at the beginning of last year totaled $1,343,000.) (Round your answers to 2 decimal places.)
This Year Last Year Equity multiplier
2. For both this year and last year:
a. Present the balance sheet in commonsize format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
Sabin Electronics CommonSize Balance Sheets
This Year Last Year Assets Current Assets: Cash % % Marketable securities Account receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets % % Liabilities and Stockholders' Equity Liabilities: Current Liabilities % % Bonds payable, 12% Total Liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and equity % %
b. Present the income statement in commonsize 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 CommonSize Income Statements
This Year Last Year Sales % % Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net Income % %
Problem 1318A CommonSize Statements and Financial Ratios for a Loan Application [LO131, LO132, LO133, LO134]
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 longterm 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 companyâs 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 stockholdersâ 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  $  543,000 
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. 
This Year  Last Year  
Working Capital 
b.  The current ratio. (Round your answers to 2 decimal places.) 
This Year  Last Year  
Current Ratio 
c.  The acidtest ratio. (Round your answers to 2 decimal places.) 
This Year  Last Year  
Acidtest ratio 
d.  The average collection period. (The accounts receivable at the beginning of last year totaled $290,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) 
This Year  Last Year  
Average Collection Period  days  days 
e.  The average sale period. (The inventory at the beginning of last year totaled $540,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) 
This Year  Last Year  
Average Sale Period  Days  Days 
f.  The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.) 
This Year  Last Year  
Operating Cycle  Days  Days 
g.  The total asset turnover. (The total assets at the beginning of last year were $2,540,000.) (Round your answers to 2 decimal places.) 
This Year  Last Year  
Total Asset Turnover 
h.  The debttoequity ratio. (Round your answers to 3 decimal places.) 
This Year  LastYear  
Debttoequity ratio 
i.  The times interest earned ratio. (Round your answers to 1 decimal place.) 
This Year  Last Year  
Times interest earned ratio 
j.  The equity multiplier. (The total stockholdersâ equity at the beginning of last year totaled $1,343,000.) (Round your answers to 2 decimal places.) 
This Year  Last Year  
Equity multiplier 
2.  For both this year and last year: 
a.  Present the balance sheet in commonsize format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) 
Sabin Electronics 
CommonSize Balance Sheets 
This Year  Last Year  
Assets  
Current Assets:  
Cash  %  %  
Marketable securities  
Account receivable, net  
Inventory  
Prepaid expenses  
Total current assets  
Plant and equipment, net  
Total assets  %  %  
Liabilities and Stockholders' Equity  
Liabilities:  
Current Liabilities  %  %  
Bonds payable, 12%  
Total Liabilities  
Stockholders' equity:  
Common stock, $15 par  
Retained earnings  
Total stockholders' equity  
Total liabilities and equity  %  % 
b.  Present the income statement in commonsize format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
