Bradburn 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 Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2026, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2026, and September 30, 2026. Another note of $6,000 is due on March 31, 2027, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a $300,000 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.

Instructions

a. Compute the following items for Bradburn Corporation.

1. Current ratio for fiscal years 2025 and 2026.

2. Acid-test (quick) ratio for fiscal years 2025 and 2026.

3. Inventory turnover for fiscal year 2026.

4. Return on assets for fiscal years 2025 and 2026. (Assume total assets were $1,688,500 at 3/31/24.)

5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2025 to 2026.

b. Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown’s request for a time extension on Bradburn’s notes.

c. Assume that the percentage changes experienced in fiscal year 2026 as compared with fiscal year 2025 for sales, cost of goods sold, and operating expenses will be repeated in each of the next 2 years. Is Bradburn’s desire to finance the plant expansion from internally generated funds realistic? Discuss.

d. Should Topeka National Bank grant the extension on Bradburn’s notes considering Daniel Brown’s statement about financing the plant expansion through internally generated funds? Discuss.

Transcribed Image Text:

Assets Cash Notes receivable Bradburn Corporation Balance Sheet March 31 Accounts receivable (net) Inventories (at cost) Plant & equipment (net of depreciation) Total assets Liabilities and Stockholders' Equity Accounts payable Notes payable Accrued liabilities Common stock (130,000 shares, $10 par) Retained earningsa Total liabilities and stockholders' equity 2026 $ 18,200 148,000 131,800 105,000 1,449,000 $1,852,000 $ 79,000 76,000 9,000 1,300,000 388,000 $1,852,000 $ 2025 12,500 132,000 125,500 50,000 1,420,500 $1,740,500 $ 91,000 61,500 6,000 1,300,000 282,000 $1,740,500 *Cash, dividends were paid at the rate of $1 per share in fiscal year 2025 and $2 per share in fiscal year 2026.