AA ezto.mheducation.com C up 10 goo... SurveyMonkey Dashboard ENT402 - TEAM 8 Survey x M Question 5 - Connect Ass... G Handout 6 - SOLUTION -... ct Assignment #5 i Saved Help Save & Exit You have just been hired as a loan officer at Westmount Bank. Your supervisor has given you a file containing a request from Hill Company, a manufacturer of computer components, for a $2,100,000 five-year loan. Financial statement data on the company for the past two years are given below: HILL COMPANY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 252, 000 $ 318, 600 Temporary investments 79, 000 Accounts receivable, net 711, 000 474, 000 Inventory 1, 027, 000 632, 000 Prepaid expenses 63, 000 47, 000 Total current assets 2 , 053, 000 1, 551, 000 Plant and equipment, net 2, 428, 000 2, 334, 000 Total assets $4, 481, 000 $3, 885, 000 Liabilities and Shareholders' Equity Liabilities: Current liabilities $1, 023, 520 $ 705, 000 Bonds payable, 10% 936, 000 780, 000 Total liabilities 1, 959, 520 1, 485, 000 Shareholders' equity: Preferred shares, 20,000, $3.40 no par value 500, 000 500,000 Common shares, 50, 000 1, 600, 000 1, 600, 000 Retained earnings 421, 480 300, 000 Total shareholders equity 2, 521, 480 2, 400, 000 Total liabilities and shareholders' equity $4, 481, 000 $3, 885, 000M300A group 10 goo... SurveyMonkey Dashboard ENT402 - TEAM 8 Survey x M Question 5 - Connect Ass... G Handout 6 - SOLUTION -... Activity-Base Connect Assignment #5 i Saved Help Save & Exit Submit Retained earnings 421, 480 300, 000 5 Total shareholders equity 2, 521, 480 2, 400, 000 Total liabilities and shareholders' equity $4, 481, 000 $3, 885, 000 HILL COMPANY 10 Comparative Income Statement and points Reconciliation of Retained Earnings This Year Last Year Sales (all on account) $4, 037, 500 $3, 220, 000 Cost of goods sold 3 , 230 , 000 2 , 554 , 000 Gross margin 807 , 500 66, 000 Print Selling and administrative expenses 407 , 500 103, 000 Operating income 400, 000 263, 000 Interest expense 93 , 600 78, 000 Net income before taxes 306, 400 185, 000 Income taxes (30%) 91 , 920 55 , 500 Net income 214, 480 129, 500 Dividends paid: Preferred shares 37 , 000 37, 000 Common shares 56 , 000 28, 000 Total dividends paid 93, 000 65, 000 Net income retained 121, 480 64, 500 Retained earnings, beginning of year 300 , 000 235, 500 Retained earnings, end of year 421, 480 $ 300, 000 Pat Smith, who just three years ago was appointed president of Hill Company, admits that the company has been inconsistent in its performance over the past several years. But Smith argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the past year. Smith also argues that investors have recognized the improving situation at Hill Company, as shown by the jump in the price of its common shares from $17 per share last year to $26 per share this year. Smith believes that with strong leadership and with the modernized equipment that the $2,100,000 loan will permit the company to buy, profits will be even stronger in the future. Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Hill Company's industry: Current ratio 2. 30 Acid-test ratio 1. 20 Average collection period 31 days Average sale period 60 days Return on assets 9.50%9:54 PM Sun Apr 9 . .. 26