Question

Che Problem 13-4A Calculation of financial statement ratios LO P3 Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit: selected balance sheet amounts at December 31, 2016, were inventory, $55,900; total assets, $249,400; common stock, $80,000, and retained earnings. $54,510.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales $ 447,600 Cost of goods sold 297,450 Gross profit 150, 150 Operating expenses 99,400 Interest expense 4,800 Income before taxes 45,950 Income taxes 18,510 Net income $ 27,440 $ Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade)* Merchandise inventory CABOT CORPORATION Balance Sheet December 31, 2017 Liabilities and Equity $ 20,000 Accounts payable 9,600 Accrued wages payable 33,600 Income taxes payable 7,500 30,150 Long-term note payable, secured by mortgage on plant assets 3,100 Common stock 152,380 Retained earnings $ 256,250 Total liabilities and equity 18,588 3,880 3,600 Prepaid expenses Plant assets, net Total assets 68,480 80,000 81,950 $ 256,250 These are short-term notes receivable arising from customer (trade) sales. Required: Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected. (4) Inventory turnover. (5) days' sales in inventory (6) debt-to-equity ratio. (7) times interest earned, (8) profit margin ratio (9) total asset turnover (10) return on total assets, and (11) return on common stockholders' equity. (Do not round Intermediate calculations.) Prev 11 of 11 !!! Next

Answer 1

1) Current Ratio = Total Current Assets/Total Current Liabilities

Total Current Assets for 2017 = Cash+Short-term investments+Accounts receivable+Notes Receivable+Inventory

= $20,000+$9,600+$33,600+$7,500+$30,150 = $100,850

Total Current Liabilities for 2017 = Accounts payable+Accrued Wages payable+Income taxes payable

= $18,500+$3,800+$3,600 = $25,900

Current Ratio = $100,850/$25,900 = 3.89

Therefore Current Ratio for 2017 is 3.89 to 1.

2) Acid test ratio = Total Quick Assets/Total Current Liabilities

Total Quick Assets = Total Current Assets - Inventory

= $100,850-30,150 = $70,700

Acid test ratio = $70,700/$25,900 = 2.73

Therefore Current Ratio for 2017 is 2.73 to 1.

3) Days's Sales Uncollected = (Accounts Receivable/Net Sales)*365 days

= ($33,600/$447,600)*365 days = 27.4 days

Therefore sales uncollected for 27 days in 2017.

4) Inventory Turnover = Cost of goods sold/Average Inventory

Average Inventory = (Opening Inventory+Closing Inventory)/2

= ($55,900+$30,150)/2 = $43,025

Inventory Turnover = $297,450/$43,025 = 6.91 times

Therefore inventory turnover for 2017 is 6.91 times.