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 $650,000 long-term loan from Gulfport State Bank, $175,000 of which will be used to bolster the Cash account and $475,000 of which will be used to modernize equipment. The companys financial statements for the two most recent years follow:

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:

2. For both this year and last year:

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

Sabin Electronics Comparative Balance Sheet This Year Last Year $ 130,000 0 672,000 1,095,000 34,000 1,931,000 2,099,400 $ 4,030,400 $ 300,000 12,000 450,000 745,000 37,000 1,544,000 1,520,000 $ 3,064,000 Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 875,000 750,000 1,625,000 $ 450,000 750,000 1,200,000 840,000 1,565,400 2,405,400 $ 4,030,400 840,000 1,024,000 1,864,000 $ 3,064,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,750,000 $ 4,800,000 Cost of goods sold 4,025,000 3,600,000 Gross margin 1,725,000 1,200,000 Selling and administrative expenses 683,000 578,000 Net operating income 1,042,000 622,000 Interest expense 90,000 90,000 Net income before taxes 952,000 532,000 Income taxes (30%) 285,600 159,600 Net income 666,400 372,400 Common dividends 125,000 104,000 Net income retained 541,400 268,400 Beginning retained earnings 1,024,000 755,600 Ending retained earnings $ 1,565,400 $ 1,024,000 - Sabin Electronics Common-Size Balance Sheets This Year Last Year Assets Current assets: Cash 3.2 % 9.8 % 0.0 0.4 Marketable securities Accounts receivable, net Inventory 16.7 14.7 27.2 24.3 Prepaid expenses 0.8 1.2 Total current assets 47.9 50.4 52.1 49.6 100.0 % 100.0 % Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities 21.7 % 14.7 % 18.6 24.5 Bonds payable, 12% Total liabilities 40.3 39.2 17.9 X 23.5 X Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and equity 41.8 X 37.3 X 59.7 60.8 100.0 % 100.0 %