Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,

who owns

15%

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, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two

$35,000

notes, which are due on June 30, 2013, and September 30, 2013. Another note of

$6,000

is due

on March 31, 2014, but he expects no difficulty in paying this note on its due date. Brown explained that

Bradburns cash flow problems are due primarily to the companys 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 financial reports for the last 2 fiscal years.

BRADBURN CORPORATION

Statement of Financial Position

March 31

Assets

2013

2012

Cash

$18,200

$12,500

Notes receivable

148,000

132,000

Accounts receivable (net)

131,800

125,500

Inventories (at cost)

105,000

50,000

Plant & equipment (net of depreciation)

1,449,000

1,420,500

Total assets

$1,852,000

$1,740,500

Liabilities and Owners' Equity

Accounts payable

$79,000

$91,000

Notes payable

76,000

61,500

Accrued liabilities

9,000

6,000

Common stock (130,000 shares, $10 par)

1,300,000

1,300,000

Retained earningsa

388,000

282,000

Total liabilities and owners' equity

$1,852,000

$1,740,500

aCash dividends were paid at the rate of $1.00 per share in fiscal year 2012 and $2.00 per share in fiscal year 2013.

SANDBURG CORPORATION

Income Statement

For The Fiscal Year Ended March 31

2013

2012

Sales

$3,000,000

$2,700,000

Cost of goods sold

1,530,000

1,425,000

Gross margin

1,470,000

1,275,000

Operating expenses

860,000

780,000

Income before income taxes

610,000

495,000

Income taxes

244,000

198,000

Net income after income taxes

$366,000

$297,000

Depreciation charges on the plant and equipment of

$100,000

and

$102,500

for the fiscal years ended March 31, 2012 and 2013, respectively, are included in cost of goods sold.

Instructions:

Fill in the provided matrix and utilize it as the matrix for "VLOOKUP" formulas within the cells below.

Column 4

Column 5

2013

2012

Average inventory - 2011

Formula

Average total assets

Formula

1,714,500

Total Assets = Mar 31, 2009

1,688,500

Total Assets = Mar 31, 2010

1,740,500

Total Assets = Mar 31, 2011

Amount

Cost of goods sold

Amount

1,425,000

Current assets

Amount

Amount

Current liabilities

Amount

Amount

Dividends

Amount

Amount

Depreciation

Amount

Amount

Gross margin

Amount

Amount

Income before taxes

Amount

Amount

Income taxes (40%)

244,000

Amount

Inventories = EOY 2010

Amount

Inventories = EOY 2011

Amount

Net income after taxes

Amount

Amount

Operating expenses

860,000

Amount

Sales

3,000,000

2,700,000

(a) Compute the following items for Bradburn Corporation:

(1) Current ratio for fiscal years 2012 and 2013.

Note: The formulas in some cell formulas are "live" and need values placed in their source cells.

2012 Current ratio =

Current assets ----------------------- = Current liabilities

Amount

---------------- =

Formula

to 1

Amount

2013 Current ratio =

Current assets ----------------------- = Current liabilities

Formula

---------------- =

Formula

to 1

Formula

(2) Acid-test (quick) ratio for fiscal years 2012 and 2013.

2012 Quick ratio =

Current assets - Inventories ----------------------- = Current liabilities

Formula

---------------- =

Formula

Formula

to 1

2013 Quick ratio =

Current assets - Inventories ----------------------- = Current liabilities

Formula

---------------- =

Formula

Formula

to 1

(3) Inventory turnover for fiscal year 2013.

2013 Inventory Turnover =

Cost of goods sold ------------------------------------ = Average inventory

Amount

---------------- =

Formula

#N/A

to 1

(4) Return on assets for fiscal years 2012 and 2013. (Assume total assets were

$1,688,500

at March 31, 2011.)

2012 Return on assets =

Net income ----------------------- = Average total assets

Formula

---------------- =

Formula

Formula

2013 Return on assets =

Net income ----------------------- = Average total assets

Formula

---------------- =

Formula

Formula

(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2012 to 2013. Omit "000" from the values.

2012

2013

Change

Percent Change

Sales

$3,000

$2,700

$300

11.11%

Cost of goods sold

#VALUE!

Formula

Formula

Formula

Gross margin

#VALUE!

Formula

Formula

Formula

Net income after taxes

#VALUE!

Formula

Formula

Formula

Note: The formulas in some cell formulas are "live" and need values placed in their source cells.

(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 Browns request for a time extension on Bradburns notes.

Other financial reports and financial analyses which might be helpful to the commercial loan officer of Spokane National Bank include:

1

Enter text answer as appropriate.

2

Enter text answer as appropriate.

3

Enter text answer as appropriate.

4

Enter text answer as appropriate.

(c) Assume that the percentage changes experienced in fiscal year 2013 as compared with fiscal year 2012 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburns desire to finance the plant expansion from internally generated funds realistic? Discuss.

Enter text answer as appropriate.

2013

2014

2015

Sales

$3,000.0

$3,000.0

$3,000.0

Cost of goods sold

Formula

Formula

Formula

Gross margin

Formula

Formula

Formula

Operating expenses

Formula

Formula

Formula

Income before taxes

Formula

Formula

Formula

Income taxes (40%)

Formula

Formula

Formula

Net income

Formula

Formula

Formula

Add: Depreciation

Amount

Amount

Deduct: Dividends

Amount

Amount

Note repayment

Amount

Funds available for plant expansion

Formula

Formula

Plant expansion

Amount

Amount

Excess funds

Formula

Formula

Assumptions: Complete as appropriate.

Sales increase at a rate of

Cost of goods sold increases at rate of

despite depreciation remaining constant.

Other operating expenses increase at the same rate experienced from 2012 to 2013;

i.e., at

Depreciation remains constant at

Dividends remain at

per share.

Plant expansion is financed equally over the two years(

each year).

Loan extension is granted.

(d) Should Topeka National Bank grant the extension on Bradburns notes considering Daniel Browns statement about financing the plant expansion through internally generated funds? Discuss.

Enter text answer as appropriate.