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 $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Sabin Electronics Comparative Dalance Sheet This Year Last Year $ 110,000 607,000 1,045,000 30.000 1,792,000 1,946,400 $3,738, 400 $ 250,000 28,000 400,000 695.000 32,000 1,405,000 1.470.000 $2,875,000 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, 128 Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' cquity $ $ 850,000 750,000 1,600,000 400,000 750,000 1,150,000 790,000 1,348,400 2,138,400 $3,738,400 790,000 935,000 1,725,000 $2,875,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $5,500,000 $4,650,000 Cost of goods sold 3.975,000 3,550,000 Gross margin 1,525,000 1,100,000 Selling and administrative expenses 673,000 568,000 Net Operating income 952.000 532,000 Interest expense 90,000 90.000 Net income before taxes 762.000 442,000 Income taxes (308) 228,600 132,600 Net income 533,400 309,400 Common dividends 120,000 99,000 Net income retained 413,400 210,400 Beginning retained carnings 935,000 724.600 Ending retained carnings $1,348,400 $ 935,000 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 territoriae Salee termere 20 n/an All calee are an account

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