Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on...

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Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reasn, it is requesting a $610,000 long-term loan from Gulfport State Bank, $155,000 of which will be used to bolster the Cash account and $455,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Sabin Electronics Comparative Balance Sheet This Year Last Year $ 114,000 $260,000 0 29,000 410,000 705,000 Liabilities and Stockholders' Equity Liabilities: Current Liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Sabin Electronics 620,000 1,055,000 30,000 33,000 1,819,000 1,437,000 1,977,800 $ 3,796,600 1,480,000 $2,917,000 $ 855,000 800,000 1,655,080 000,000 1,341,800 2,141,000 $410,000 800,000 1,210,000 800,000 907,000 1,707,000 $ 2,917,000 $ 3,796,800 Comparative Income Statement and Reconciliation Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating incone Interest expense Net incone before taxes: Income taxes (30%) Net incone Con di This Year $ 5,550,000 3,985,000 1,565,000 675,000 890,000 Last Year $ 4,680,000 3,560,000 1,120,000 570,000 550,000 96,000 96,000 794,000 454,000 238,200 555,800 136,200 317,000 131 100 < Prev 9 of 10 Next > 1 points Back References Sales Sabin Electronics Comparative Incone Statement and Reconciliation Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense) Net income before taxes Income taxes (30%) Net incone Common dividends Net income retained Beginning retained earnings Ending retained earnings This Year $ 5,550,000 3,985,000 1,565,000 675,000 890,000 96,000 Last Year $ 4,680,000 3,560,000 1,120,000 570,000 550,000 96,000 454,000 794,000 238,200 136,2001 555,800 317,800 121,000 100,000 434,800 217,800 907,000 689,200 $ 1,341,000 $907,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines In order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 3/10, n/30. All sales are on account. Required: 1. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year. a. The amount of working capital. b. The current ratio. c. The acid-test ratio d. The average collection period. (The accounts receivable at the beginning of last year totaled $360,000.) e. The average sale period. (The inventory at the beginning of last year totaled $610,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,890,000.) h. The debt-to-equity ratio L The times interest earned ratio ). The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,697,000.) 2. For both this year and last year Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reasn, it is requesting a $610,000 long-term loan from Gulfport State Bank, $155,000 of which will be used to bolster the Cash account and $455,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Sabin Electronics Comparative Balance Sheet This Year Last Year $ 114,000 $260,000 0 29,000 410,000 705,000 Liabilities and Stockholders' Equity Liabilities: Current Liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Sabin Electronics 620,000 1,055,000 30,000 33,000 1,819,000 1,437,000 1,977,800 $ 3,796,600 1,480,000 $2,917,000 $ 855,000 800,000 1,655,080 000,000 1,341,800 2,141,000 $410,000 800,000 1,210,000 800,000 907,000 1,707,000 $ 2,917,000 $ 3,796,800 Comparative Income Statement and Reconciliation Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating incone Interest expense Net incone before taxes: Income taxes (30%) Net incone Con di This Year $ 5,550,000 3,985,000 1,565,000 675,000 890,000 Last Year $ 4,680,000 3,560,000 1,120,000 570,000 550,000 96,000 96,000 794,000 454,000 238,200 555,800 136,200 317,000 131 100 < Prev 9 of 10 Next > 1 points Back References Sales Sabin Electronics Comparative Incone Statement and Reconciliation Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense) Net income before taxes Income taxes (30%) Net incone Common dividends Net income retained Beginning retained earnings Ending retained earnings This Year $ 5,550,000 3,985,000 1,565,000 675,000 890,000 96,000 Last Year $ 4,680,000 3,560,000 1,120,000 570,000 550,000 96,000 454,000 794,000 238,200 136,2001 555,800 317,800 121,000 100,000 434,800 217,800 907,000 689,200 $ 1,341,000 $907,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines In order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 3/10, n/30. All sales are on account. Required: 1. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year. a. The amount of working capital. b. The current ratio. c. The acid-test ratio d. The average collection period. (The accounts receivable at the beginning of last year totaled $360,000.) e. The average sale period. (The inventory at the beginning of last year totaled $610,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,890,000.) h. The debt-to-equity ratio L The times interest earned ratio ). The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,697,000.) 2. For both this year and last year