Question
Indigo Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one
Indigo 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 Indigo and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,740 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $6,020 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Indigos cash flow problems are due primarily to the companys desire to finance a $297,240 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.
Indigo Corporation Balance Sheet March 31 | ||||
---|---|---|---|---|
Assets | 2021 | 2020 | ||
Cash | $18,040 | $12,400 | ||
Notes receivable | 147,260 | 131,030 | ||
Accounts receivable (net) | 132,340 | 125,790 | ||
Inventories (at cost) | 105,650 | 49,690 | ||
Plant & equipment (net of depreciation) | 1,445,350 | 1,431,190 | ||
Total assets | $1,848,640 | $1,750,100 | ||
Liabilities and Owners Equity | ||||
Accounts payable | $79,080 | $91,660 | ||
Notes payable | 75,500 | 61,330 | ||
Accrued liabilities | 16,490 | 11,510 | ||
Common stock (130,000 shares, $10 par) | 1,290,130 | 1,306,340 | ||
Retained earnings a | 387,440 | 279,260 | ||
Total liabilities and stockholders equity | $1,848,640 | $1,750,100 | ||
a Cash dividends were paid at the rate of $1 per share in fiscal year 2020 and $2 per share in fiscal year 2021. |
Indigo Corporation Income Statement For the Fiscal Years Ended March 31 | ||||
---|---|---|---|---|
2021 | 2020 | |||
Sales revenue | $2,971,790 | $2,699,340 | ||
Cost of goods solda | 1,533,470 | 1,433,480 | ||
Gross margin | 1,438,320 | 1,265,860 | ||
Operating expenses | 852,540 | 777,590 | ||
Income before income taxes | 585,780 | 488,270 | ||
Income taxes (40%) | 234,312 | 195,308 | ||
Net income | $351,468 | $292,962 | ||
a Depreciation charges on the plant and equipment of $100,490 and $102,670 for fiscal years ended March 31, 2020 and 2021, respectively, are included in cost of goods sold. |
(a) Compute the following items for Indigo Corporation. (Round answers to 2 decimal places, e.g. 2.25 or 2.25%.)
1. | Current ratio for fiscal years 2020 and 2021. | |
---|---|---|
2. | Acid-test (quick) ratio for fiscal years 2020 and 2021. | |
3. | Inventory turnover for fiscal year 2021. | |
4. | Return on assets for fiscal years 2020 and 2021. (Assume total assets were $1,673,770 at 3/31/19.) | |
5. | Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2020 to 2021. |
2020 | 2021 | |||||||
---|---|---|---|---|---|---|---|---|
1. | Current ratio | :1 | :1 | |||||
2. | Acid-test (quick) ratio | :1 | :1 | |||||
3. | Inventory turnover | times | ||||||
4. | Return on assets | % | % |
5. | Percent Changes | Percent Increase | |||
---|---|---|---|---|---|
Sales revenue | % | ||||
Cost of goods sold | % | ||||
Gross margin | % | ||||
Net income after taxes | % |
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