Question

Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $48,900; total assets, $189,400; common stock, $90,000; and retained earnings, $33,748.) CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 448,600 Cost of goods sold 297,250 Gross profit 151,350 Operating expenses 98,600 Interest expense 4,100 Income before taxes 48,650 Income tax expense 19,598 Net income $ 29,052 Assets Cash Short-term investments Accounts receivable, net Merchandise inventory CABOT CORPORATION Balance Sheet December 31 Liabilities and Equity $ 10,000 Accounts payable 8,400 Accrued wages payable 33,700 Income taxes payable 32,150 Long-term note payable, secured by mortgage on plant assets 2,650 Common stock 153,300 Retained earnings $ 240,200 Total liabilities and equity $ 17,500 3,200 3,300 63,400 Prepaid expenses Plant assets, net Total assets 90,000 62,800 $ 240,200 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.)

Answer 1

nth Current Ratio Choose Numerator / Choose Denominator = Corent Ratio Current assets / Current liabilities = current Ratio $ 86, 900 $ 24,000 = 3.62 to 1 Calculation : Current Assets = ( Cash & short term investments & Accounts. Receivable, net & Merchandise Inventore & Prepaid expenses) = $10,000+ $8,400 + $33,700 + $32,150+ $2,650 & 86,900 Current liabilities = (Accounts Payable + Accrued wages paya- ble & Income taxes payable) = ($71,500 + $3,200 + $ 3,300 = $ 24,000 2) Acid- Test Ratio Choose Numerator / Choose Denominator = Acid - Test Ratio Quick assets Current liabilities - Acid- Test Ratio $ 52,100 / $ 24,000 = 2017 to 1 Calculation: Quick assets = ( Current Assets - Merchandise Inventory - Prepaid expenses = ( 486,900 - € 32,150 - $ 2,650) + $ 52,100

Days' sales Uncollected Choose Numerator / Choose Denominator 1x Days = Days sales uncollected Querent receivables / Net sales 365 Days' sales uncodected $ 33,700 1 & 448,600 x 365 = 27.42 days Calculation: Current Receivables = Accounts receivable, net. $ 33,700 14) Inventory Twinover Choose Numerator / Choose denominator Inventory Turnover cost of goods sold / Average Inventory - Inventory Turnover $ 297,250 & 40, 525 7.33 times Calculation: Average Inventory = Beginning inventory + Ending inventory Average Inventory = $ 48,900 + $ 32,150 $ 81,050 2 = $ 40,525 Days sales in Inventory choose Days' sales in Denominator & Days Inventory Days' sales in goods sold / 365 Inventory $ 297, 250 x 365 - Choose Numerator cost of Merchandise Inventory $ 32,150 39.48 days

16 Debt - to - Equity Ratio Choose Numerator / Choose Denominator Debt-to-Equity Ratio Total liabilities / Total equity = Debt-to - Equity Ratio & 87,400 & 152,800 E 0.57 to 1 | Calculation: Total abilities = (current liabilities & Long term notes payable) = ($24,000 + $ 63,400 $ 87,400 Total equity = common stock & Retained earnings $ 90,000 + $ 62,800 = $ 152,800 CD Times Interest Earned Choose Choose Numerator / Denominator Income TT Interest Interest before tax it Expense! Expense $ 48,650 + $ 4,100 $ 4,100 Times Interest Earned times Interest Earned 12:07 times Profit Margin Ratio Choose Denominator Net sales Choose Numerator / Profit Ratio margin Profit Marigin Ratio 6.48 Net Income $ 29,052 $ 448,600

Total Asset Turnover Choose Numerator / Choose Denominator = Total Asset Tuinover Net sales Average total = Total Asset Assets Turnover $ 440,600 / $214, doo = 2109 times Calculation: Average total Assets = [(Beginning Total Assets & Ending Total Assets) = 2 = [(4189,400 + $ 240,200) 42) = ($429,600 32) $ 214,800 Return on Total Assets Choose Numerator / Choose Denominator - Return on Total Assets Net Income V Average Total Retwen on total Assets Assets $ 29,052 4 214,800 13.53 Calculation: Average Total Assets are calculated above in part (9)

(10) Return on common Stockholders equity Choose Choose Numeratar TReturn on common Denominatar 1 stockholders equity Net Preferred Average Return on common Income IF Dividends = Common stock- holders' equity 1 stockholders equity $29,052 - $0 $ 138,274 = 21.00 % calculation" Average common stockholders' equity = (Beginning common stock + Ending common stock + Beginning Retained earnin & Ending Retained earnings) : 2] = [( $90,000 + $ 90,000 + $ 33,748+ $ 62, 800)2 - ($ 276,5484 2) = $ 138,274