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 $690,000 long-term loan from Gulfport State Bank, $195,000 of which will be used to bolster the Cash account and $495,000 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 $ 146,000 $ 724,000 1,135,000 38,000 2,043,000 2,229,400 4,272,400 340,000 16,000 490,000 785.000 41,000 1,672,000 1,480,000 3,152,000 $ S Assets Current assets: Cash Marketable securities Accounts 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 stockholders' equity $ $ 895,000 850,000 1,745,000 410,000 850,000 1.260.000 880,000 1,647,400 2,527,400 4,272,400 880,000 1.012,000 1.892,000 3.152,000 $ Sabin Electronics Comparative Income Statement and Reconciliation This Year Sales $ 5,950,000 Cost of goods sold 4,065 000 Gross margin 1.885.000 Colind minint WODOOD Mon Last Year $ 4.920,000 3,640,000 1,280,000 LOS

Hi! Can you please help me answer required 1, 2A, and 2B. Thanks and have a wonderful day!

Answer 1

Ans. 1
Ans. A	Working capital =     Total current assets - Total current liabilities
	This year	$2,043,000 - $895,000	$1,148,000
	Last year	$1,672,000 - $410,000	$1,262,000
Ans. B	Current ratio   =   Total current assets / Total current liabilities
	This year	$2,043,000 / $895,000	2.28 : 1
	Last year	$1,672,000 / $410,000	4.08 : 1
Ans. C	Acid test ratio   =   (Total current assets - Inventory - Prepaid expenses) / Total current liabilities
	This year	($2,043,000 - $1,135,000 - $38,000) / $895,000	0.97 : 1
	Last year	($1,672,000 - $785,000 - $41,000)/ $410,000	2.06 : 1
Ans. D	Average collection period   =   No. of days in year / Net credit sales * Average accounts receivables
	This year	365 / $5,950,000 * $607,000	37.24	days
	Last year	365 / $4,920,000 * $465,000	34.50	days
	*Average receivable = (Beginning receivables + Ending receivables) / 2
	This year	($490,000 + $724,000) / 2	$607,000
	Last year	($440,000 + $490,000) / 2	$465,000
Ans. E	Average sales period   =   No. of days in year / Cost of goods sold * Average inventory
	This year	365 / $4,065,000 * $960,000	86.20	days
	Last year	365 / $3,640,000 * $737,500	73.95	days
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	This year	($785,000 + $1,135,000) / 2	$960,000
	Last year	($690,000 + $785,000) / 2	$737,500
Ans. F	Operating cycle = Average collection period + Average sales period
	This year	37.24 + 86.20	123.44	days
	Last year	34.50 + 73.95	108.45	days
Ans. G	Total assets turnover = Sales / Average assets
	This year	$5,950,000 / $3,712,200	1.60	times
	Last year	$4,920,000 / $3,132,000	1.57	times
	*Average assets = (Beginning assets + Ending assets) / 2
	This year	($3,152,000 + $4,272,400) / 2	$3,712,200
	Last year	($3,112,000 + $3,152,000) / 2	$3,132,000
Ans. H	Debt to equity ratio   =   Total liabilities / Total stockholder's equity
	This year	$1,745,000 / $2,527,400	0.69
	Last year	$1,260,000 / $1,892,000	0.67
Ans. i	Time interest earned = Net operating income / Interest expenses
	This year	$1,194,000 / $102,000	11.71	times
	Last year	$694,000 / $102,000	6.80	times
Ans. J	Equity multiplier   =   Average assets / Average stockholder's equity
	This year	$3,712,200 / $2,209,700	1.68	times
	Last year	$3,132,000 / $1,887,000	1.66	times
	*Average equity = (Beginning equity + Ending equity) / 2
	This year	($1,892,000 + $2,527,400) / 2	$2,209,700
	Last year	($1,882,000 + $1,892,000) / 2	$1,887,000
Ans. 2a	Sabin Electronics
	Common - Size Balance Sheets
		This Year		Last Year
		Amount	%	Amount	%
	Assets
	Current Assets:
	Cash	$146,000	0.9%	$340,000	2.4%
	Marketable securities	$0	0.0%	$16,000	0.1%
	Accounts receivable (net)	$724,000	4.3%	$490,000	3.5%
	Inventory	$1,135,000	6.8%	$785,000	5.5%
	Prepaid expenses	$38,000	0.2%	$41,000	0.3%
	Total current assets	$2,043,000	12.3%	$1,672,000	11.8%
	Plant and equipment (net)	$2,229,400	13.4%	$1,480,000	10.4%
	Total assets	$4,272,400	25.6%	$3,152,000	22.2%
	Liabilities and Stockholder's Equity:
	Liabilities:
	Current Liabilities	$895,000	5.4%	$410,000	2.9%
	Bonds payable, 12%	$850,000	5.1%	$850,000	6.0%
	Total liabilities	$1,745,000	10.5%	$1,260,000	8.9%
	Stockholder's equity:
	Common stock	$880,000	5.3%	$880,000	6.2%
	Retained earnings	$1,647,400	9.9%	$1,012,000	7.1%
	Total stockholder's equity	$2,527,400	15.2%	$1,892,000	13.3%
	Total liabilities and owner's equity	$4,272,400	25.6%	$3,152,000	22.2%
	*In a common size balance sheet, all percentages are calculated on the base of total assets.
	Amount is percentage for Current year =   Particular amount of Current year / Total assets * 100
	Amount is percentage for Last year =   Particular amount of Last year / Total assets * 100

5 Ans. 2b Last Year Sales Cost of goods sold Gross profit Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income Sabin Electronics Common - Size Income Statements This Year Amount $5,950,000 100.00% $4,065,000 68.32% $1,885,000 31.68% $691,000 11.61% $1,194,000 7.55% $102,000 0.65% $1,092,000 6.91% $327,600 2.07% $764,400 4.83% Amount $4,920,000 $3,640,000 $1,280,000 $586,000 $694,000 $102,000 $592,000 $177,600 $414,400 % 100.00% 73.98% 26.02% 4.48% 5.31% 0.78% 4.53% 1.36% 3.17% *In a common size income statement, all precentages are calculated on the base of sales. Amount is percentage for this year = Particular amount of this year / Sales * 100 Amount is percentage for Last year = Particular amount of Last year / Sales * 100