Question

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $52,900; total assets, $199,400; common stock, $84,000; and retained earnings, $43,366.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales $ 452,600 Cost of goods sold 297,650 Gross profit 154,950 Operating expenses Interest expense 4,100 Income before taxes 51,550 Income taxes 20,766 Net income $ 30,784 99,300 $ Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade) * Merchandise inventory CABOT CORPORATION Balance Sheet December 31, 2017 Liabilities and Equity $ 18,000 Accounts payable 8,000 Accrued wages payable 30,800 Income taxes payable 3,500 32,150 Long-term note payable, secured by mortgage on plant assets 3,100 Common stock 153,300 Retained earnings $ 248,850 Total liabilities and equity 18,500 3,400 4,400 64,400 Prepaid expenses Plant assets, net Total assets 84,000 74,150 $ 248,850 * 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

Answer 1

Please find below table useful to compute desired results: -

E Current Assets Current Liabilities Current Ratio G =SUMB2:B7) =SUMD2:D4) =G1/G2 H Quick Assets Acid Test Ratio =SUM(B2:B5) =11/G2 B С D 1 Ending Balance of Accounts 2 Cash 18000 Accounts Payable 18500 3 Short-term investment 8000 Accrued wages payable 3400 4 Accounts receivable, net 30800 Income taxes payable 4400 5 Notes receivable 3500 Long-term note payable 64400 6 Merchandise Inventory 32150 Common Stock 84000 7 Prepaid Expenses 3100 Retained Earnings 74150 8 Plant assets, net 153300 9 Total Assets =SUM(B2:B8) Total Liabilities and Equity =SUMD2:08) 10 Beginning Balance of Accounts 11 Merchandise Inventory 52900 Common Stock 84000 12 Total Assets 199400 Retained Earnings 43366 13 Current Receivable Net Sales Days' Sales Uncollected =B4+B5 452600 =G5/G6*365 Cost of Goods Sold Average Inventory Inventory Turnover 297650 =(B11+B6)/2 I=15/16 Inventory Days' Sales in Inventory =B6 =G9/15*365 Total liabilities Total Equity Debt to Equity Ratio =SUM(D2:D5) =D6+D7 1=19/110 Income before Tax Interst Expense Times Interest Earned 51550 4100 =(G13+G14)/G14 Net Income Profit Margin Ratio 14 30784 =113/G6 15 16 17 Return on Total Assets =113/G17 Average Total Assets Total Asset Turnover =(B12+B9)/2 =G6/G17 18 19 20 21 Preferred Dividend 10 Average Common Stockholder's Equity =D11+D12+D6+D7)/2 Return on Common Stockholder's Equity =(113-G20)/G21 22 Activate Windows

End results would be as follows: -

G H 95,550 Quick Assets 26,300 Acid Test Ratio 3.63 60,300 2.29 3 А B Ending Balance of Accounts 2 Cash 18,000 Accounts Payable Short-term investment 8.000 Accrued wages payable 4 Accounts receivable, net 30.800 Income taxes payable 5 Notes receivable 3,500 Long-term note payable 6 Merchandise Inventory 32.150 Common Stock Prepaid Expenses 3.100 Retained Earnings 8 Plant assets, net 153,300 9 Total Assets 248,850 Total Liabilities and Equity 10 Beginning Balance of Accounts 11 Merchandise Inventory 52,900 Common Stock 12 Total Assets 199,400 Retained Earnings 13 D F Current Assets 18.500 Current Liabilities 3.400 Current Ratio 4,400 64.400 Current Receivable 84.000 Net Sales 74.150 || Days' Sales Uncollected 34,300 Cost of Goods Sold 452,600 Average Inventory 27.66 Inventory Turnover 297,650 42.525 7.00 248.850 Inventory Days' Sales in Inventory 32.150 Total liabilities 39.42 Total Equity Debt to Equity Ratio 90.700 158.150 0.57 84.000 43,366 Income before Tax Interst Expense Times Interest Earned 14 51,550 Net Income 4.100 Profit Margin Ratio 13.57 30,784 6.80% 15 16 17 13.74% Average Total Assets Total Asset Turnover 224.125 Return on Total Assets 2.02 18 19 20 21 Preferred Dividend Average Common Stockholder's Equity Return on Common Stockholder's Equity 142,758 21.56% 22