Question

Crowley Building Supply sells various building materials to retail outlets. The company has just approached Sycamore State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company's financial statements for the most recent two years follow: Crowley Building Supply Comparative Balance Sheets This Year Last Year Assets Current assets Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses 59,500 4.500 482,000 951,680 22,500 1,520,180 1,647,620 144.500 22.500 294,000 591,590 29,500 Total current assets Plant and equipment, not 1,082,090 1,552,580 Total assets $ 3,167,800 $ 2.634,670 Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable. 8% $ $ 812,000 619,500 451,000 619,500 Total liabilities 1,431,500 1,070,500 Stockholders' equity Preferred stock, $25 par, 7% Common stock, S10 par Retained earnings 324.000 516,000 896 300 324 000 516,000 724,170 1.736,300 Total stockholders' equity Total liabilities and stockholders Equity 1,564,170 2,634,670 $ 3.167.800 $

Answer 1

Ans. 1a	Working capital =     Total current assets - Total current liabilities
	This year	$1,520,180 - $812,000	$708,180
	Last year	$1,082,090 - $451,000	$631,090
Ans. 1 b	Current ratio   =   Total current assets / Total current liabilities
	This year	$1,520,180 / $812,000	1.87 : 1
	Last year	$1,082,090 / $451,000	2.40 : 1
Ans. 1 c	Acid test ratio   =   (Total current assets - Inventory - Prepaid expenses) / Total current liabilities
	This year	($1,520,180 - $951,680 - $22,500) / $812,000		0.67 : 1
	Last year	($1,082,090 - $591,590 - $29,500) / $451,000		1.02 : 1
Ans. 1 d	Average collection period   =   No. of days in year / Net credit sales * Average accounts receivables
	This year	365 / $5,033,000 * $388,000	28.14	times
	Last year	365 / $4,375,000 * $277,500	23.15	times
	*Average receivable = (Beginning receivables + Ending receivables) / 2
	This year	($294,000 + $482,000) / 2	$388,000
	Last year	($261,000 + $294,000) / 2	$277,500