Question

Culver Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Culver and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,320 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,940 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Culver's cash flow problems are due primarily to the company's desire to finance a $302,050 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. CULVER CORPORATION BALANCE SHEET MARCH 31 Assets Cash 2018 $18,130 148,340 132,970 Notes receivable Accounts receivable (net) Inventories (at cost) Plant & equipment (net of depreciation) Total assets 2017 $12,400 132,610 125,610 49,700 1,431,850 $1,752,170 105,280 1,442,810 $1,847,530 Liabilities and Owners' Equity Accounts payable Notes payable Accrued liabilities Common stock (130,000 shares, $10 par) $78,630 76,150 18,540 1,289,230 384,980 $1,847,530 $90,790 61,850 29,430 1,290,910 279,190 $1,752,170 Retained earningsa Total liabilities and stockholders' equity aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018.

Answer 1

Answer :-

a.Compute the following items for Culver Corporation

1. Current Ratio for Fiscal Years 2017 and 2018.

	Formula	2017	2018
Current Ratio	Current assets/Current liabilities	$ 320,320/$ 182,070 = 1.76 : 1	$ 404,720/$ 173,320 = 2.33 : 1

2. Acid-test (quick) ratio for fiscal years 2017 and 2018.

	Formula	2017	2018
Acid-test (quick) ratio	(Current assets – Inventories)/ Current liabilities	($ 320,320-$ 49,700)/$ 182,070 = 1.48 : 1	($ 404,720-$105,280)/$ 173,320 = 1.73 : 1

3. Inventory turnover for fiscal year 2018.

Inventory Turnover for 2018 = Cost of goods sold/Average inventory

                                                   = $ 1,522,790 / $ 77,490 = 19.65

4. Return on assets for fiscal years 2017 and 2018. (Assume total assets were$ 1,694,460 at March 31, 2016.)

	Formula	2017	2018
Return on assets	Net Income/Average total assets	$ 301,272/ $ 1,723,315 = 17.5%	$ 374,208/ $ 1,799,850 = 20.8%

5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018.

	2017	2018	Change	Percentage Change
Sales	$ 2,709,810	$ 3,007,270	$ 297,460	11.00%
Cost of goods sold	$ 1,432,430	$ 1,522,790	$ 90,360	6.30%
Gross margin	$ 1,277,380	$ 1,484,480	$ 207,100	16.21%
Net income after taxes	$ 301,272	$ 374,208	$ 72,936	24.20%