Question

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, 2017, were inventory, $55,900; total assets, $189,400; common stock, $89,000; and retained earnings, $33,378.) CABOT CORPORATION Income Statement For Year Ended December 31, 2018 Sales $ 455, 600 Cost of goods sold 296,850 Gross profit 158,750 Operating expenses 98,700 Interest expense 4,500 Income before taxes 55,550 Income tax expense 22,378 Net income $ 33,172 Assets Cash Short-term investments Accounts receivable, net Merchandise inventory CABOT CORPORATION Balance Sheet December 31, 2018 Liabilities and Equity $ 20,000 Accounts payable 9,200 Accrued wages payable 32,600 Income taxes payable 32,150 Long-term note payable, secured by mortgage on plant assets 2,900 Common stock 150,300 Retained earnings $ 247, 150 Total liabilities and equity $ 16,500 4,800 2,900 Prepaid expenses Plant assets, net Total assets 67,400 89,000 66,550 $ 247,150 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

Answer 1.

Current Assets = Total Assets - Plant Assets, net
Current Assets = $247,150 - $150,300
Current Assets = $96,850

Current Liabilities = Accounts Payable + Accrued Wages Payable + Income Taxes Payable
Current Liabilities = $16,500 + $4,800 + $2,900
Current Liabilities = $24,200

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $96,850 / $24,200
Current Ratio = 4.0 to 1

Answer 2.

Quick Assets = Current Assets - Merchandise Inventory - Prepaid Expenses
Quick Assets = $96,850 - $32,150 - $2,900
Quick Assets = $61,800

Acid-test Ratio = Quick Assets / Current Liabilities
Acid-test Ratio = $61,800 / $24,200
Acid-test Ratio = 2.6 to 1

Answer 3.

Days’ Sales Uncollected = Accounts Receivable, net / Sales * 365
Days’ Sales Uncollected = $32,600 / $455,600 * 365
Days’ Sales Uncollected = 26.1 days

Answer 4.

Average Inventory = ($55,900 + $32,150) / 2
Average Inventory = $44,025

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $296,850 / $44,025
Inventory Turnover = 6.7 times

Answer 5.

Days’ Sales in Inventory = Merchandise Inventory / Cost of Goods Sold * 365
Days’ Sales in Inventory = $32,150 / $296,850 * 365
Days’ Sales in Inventory = 39.5 days