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 reason, it is requesting a $$600,000$ long$-$term loan from Gulfport State Bank, $$150,000$ of which will be used to bolster the Cash account and $$450,000$ of which will be used to modernize equipment. The company$$s financial statements for the two most recent years follow:

Sabin Electronics

Comparative Balance Sheet

This Year Last Year

Assets

Current assets:

Cash $ $110,000$ $ $250,000$

Marketable securities $028,000$

Accounts receivable, net $607,000400,000$

Inventory $1,045,000695,000$

Prepaid expenses $30,00032,000$

Total current assets $1,792,0001,405,000$

Plant and equipment, net $1,946,4001,470,000$

Total assets $ $3,738,400$ $ $2,875,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $850,000$ $ $400,000$

Bonds payable, $12\%750,000750,000$

Total liabilities $1,600,0001,150,000$

Stockholders' equity:

Common stock, $$15$ par $790,000790,000$

Retained earnings $1,348,400935,000$

Total stockholders$$ equity $2,138,4001,725,000$

Total liabilities and stockholders' equity $ $3,738,400$ $ $2,875,000$

Sabin Electronics

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $ $5,500,000$ $ $4,650,000$

Cost of goods sold $3,975,0003,550,000$

Gross margin $1,525,0001,100,000$

Selling and administrative expenses $673,000568,000$

Net operating income $852,000532,000$

Interest expense $90,00090,000$

Net income before taxes $762,000442,000$

Income taxes $(30\%)228,600132,600$

Net income $533,400309,400$

Common dividends $120,00099,000$

Net income retained $413,400210,400$

Beginning retained earnings $935,000724,600$

Ending retained earnings $ $1,348,400$ $ $935,000$

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 $2/10,$ 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 $$350,000.)$

e$.$ The average sale period. $($The inventory at the beginning of last year totaled $$600,000.)$

f$.$ The operating cycle.

g$.$ The total asset turnover. $($The total assets at the beginning of last year were $$2,790,000.)$

h$.$ The debt$-$to$-$equity ratio.

i$.$ The times interest earned ratio.

j$.$ The equity multiplier. $($The total stockholders$$ equity at the beginning of last year totaled $$1,715,000.)$

$2.$ For both this year and last year:

a$.$ Present the balance sheet in common$-$size format for both this year and last year.

b$.$ Present the income statement in common$-$size format down through net income for both this year and last year.