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 297,452 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 18,500 3,880 3,600 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 68,480 80,000 81,950 $ 256,250 Prepaid expenses Plant assets, net Total assets *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

Answer:

E Days Days' Sales in Inventory Days' Sales in Inventory Choose Choose Numerator: Denominator: Merchandise inventory Cost of goods sold X 365 2017 301501 297450 x 365 = Days' Sales in Inventory = 37.0 days 6 Debt-to-Equity Ratio Choose Choose Numerator: – Debt-to-Equity Ratio Denominator: Total liabilities / Total equity = Debt-to-Equity Ratio 943001 161950 = 0.58 to 1 Times Interest Earned Times Interest Earned Choose Choose Numerator: Denominator: Income before tax + Interest expense / Interest expense | = 27 2017 45950 + 48001 4800] = Times Interest Earned 10.57 times

Profit Margin Ratio Choose Profit margin Choose Numerator: Denominator: ratio Net income / Net sales = Profit margin ratio 2017 27440 / 447600/= 6.13% % 9 Choose Numerator: Total Asset Turnover Total Asset Turnover Choose Denominator: Average total assets 252825 Net sales Total Asset Turnover 2017 447600 11 10 Return on Total Assets Choose Choose Numerator: Denominator: Net income Average total assets 2017 274401 252825 = Return on Total Assets Return on Total Assets 10.85% % Return on Common Stockholders' Equity Return On Common Choose Numerator: Choose Denominator Stockholders' Equity Average common Return On Common Preferred dividends / stockholders' Stockholders' Equity equity 27440 - 148230 = 18.51% Net income 2017

Working notes for the above answer is as under

Days' Sales in Inventory Choose Numerator: Days Days' Sales in Inventory 13 Choose Denominator: Cost of goods sold 1297450 14 X 365 Merchandise inventory 30150 = Days' Sales in Inventory | = =+(C15/E15)*G15 15 2017 X 365 days 16 18 6 Choose Numerator: 19 Debt-to-Equity Ratio Choose Debt-to-Equity Ratio Denominator: 7 Total equity = Debt-to-Equity Ratio =80000+81950 = =+C21/E21 Total liabilities =18500+3800+3600+68400 21 2017 Times Interest Earned 1 Choose Denominator: Times Interest Earned 247 Choose Numerator: 26 Income before tax + Interest expense 27 2017 45950 + 4800 1 Interest expense 7 4800 Times Interest Earned =+(C27+E27/G27 times

B C A 29 8 DE Profit Margin Ratio Choose = Profit margin ratio Denominator: / Net sales = Profit margin ratio 1447600 =+C32/E32 Choose Numerator: 30 Net income 32 2017 27440 33 34 9 35 Choose Numerator: Net sales Total Asset Turnover Choose Total Asset Turnover Denominator: Average total assets = Total Asset Turnover 36 37 2017 447600 =+(249400+25625072 =+C37/E37 10 Return on Total Assets Choose Return on Total Assets Denominator: Choose Numerator: Net income 2017 27440 Average total assets = Return on Total Assets 7 =+(249400+256250)/2 = =+C42/E42 43 44 11 Return on Common Stockholders' Equity Choose Denominator Choose Numerator: Return On Common Stockholders' Equity Net income - Preferred dividends Average common stockholders' equity Return On Common Stockholders' Equity = =+C47/647 47 2017 27440 1 =+(80000+54510+80000+81950)2 48