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EleoNora [17]
3 years ago
9

Paul Sabin organized Sabin Electronics 10 years ago to produceand sell several electronic devices on which he had securedpatents

. Although the company has been fairly profitable, it is nowexperiencing a severe cash shortage. For this reason, it isrequesting a $620,000 long-term loan from Gulfport State Bank,$160,000 of which will be used to bolster the Cash account and$460,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow:
Sabin Electronics
Comparative Balance Sheet
This Year Last Year
Assets
Current assets:
Cash $ 118,000 $ 270,000
Marketable securities 0 30,000
Accounts receivable, net 633,000 420,000
Inventory 1,065,000 715,000
Prepaidexpenses 30,000 34,000
Total currentassets 1,846,000 1,469,000
Plant and equipment,net 1,969,200 1,490,000
Total assets $ 3,815,200 $ 2,959,000
Liabilitiesand Stockholders Equity
Liabilities:
Currentliabilities $ 820,000 $ 420,000
Bondspayable, 12% 850,000 850,000
Totalliabilities 1,670,000 1,270,000
Stockholders'equity:
Commonstock, $15 par 630,000 630,000
Retained earnings 1,515,200 1,059,000
Total stockholders equity 2,145,200 1,689,000
Total liabilitiesand equity $ 3,815,200 $ 2,959,000
Sabin Electronics
Comparative Income Statement and Reconciliation
This Year Last Year
Sales $ 5,600,000 $ 4,710,000
Cost of goodssold 3,995,000 3,570,000
Gross margin 1,605,000 1,140,000
Selling andadministrative expenses 677,000 572,000
Net operatingincome 928,000 568,000
Interestexpense 102,000 102,000
Net income beforetaxes 826,000 466,000
Income taxes(30%) 247,800 139,800
Net income 578,200 326,200
Commondividends 122,000 101,000
Net incomeretained 456,200 225,200
Beginning retainedearnings 1,059,000 833,800
Ending retainedearnings $ 1,515,200 $ 1,059,000
During the past year, the companyintroduced several new product lines and raised the selling priceson a number of old product lines in order to improve its profitmargin. The company also hired a new sales manager, who hasexpanded sales into several new territories. Sales terms are 2/10,n/30. All sales are on account.
e. The average sale period. (Theinventory at the beginning of last year totaled$620,000.)(Round your intermediate calculations and finalanswers to 1 decimal place. Use 365 days in a year.)
f. The operating cycle.(Round your intermediate calculations and final answer to 1decimal place.)
g. The total asset turnover. (The total assets at the beginning oflast year were $2,919,000.) (Round your answers to 2decimal places.)
h. The debt-to-equity ratio.(Round your answers to 3 decimal places.)
i. The times interest earned ratio.(Round your answers to 1 decimal place.)
j. The equity multiplier. (Thetotal stockholdersâ equity at the beginning of last year totaled$1,679,000.) (Round your answers to 2 decimalplaces.)
Business
1 answer:
Semenov [28]3 years ago
6 0

Answer:

e. The average sales period = (average balance inventory / COGS) x 365 days =  {[($1,065,000 + $715,000)/2] / $3,995,000} x 365 days = 81.3 days

f. The operating cycle = average sales period + (average accounts receivable / total credit sales) x 365 days = 81.3 + {[($633,000 + $420,000)/2] / $5,600,000} x 365 days = 81.3 + 34.3 = 115.6 days

g. The total asset turnover = total sales / average assets = $5,600,000 / [($3,815,200 + $2,959,000)/2 = 1.66 times

h. The debt-to-equity ratio = total liabilities / total equity = $1,670,000 / $2,145,200 = 0.778 or 77.8%

i. The times interest earned ratio = EBIT / interest expense = $928,000 / $102,000 = 9.1

j. The equity multiplier = total assets / total equity = $3,815,200 / $2,145,200 = 1.78

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