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 $510,000 long-term loan from Gulfport State Bank, $105,000 of which will be used to bolster the Cash account and $405,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Assets Current assets: Sabin Electronics Comparative Balance Sheet This Year Last Year 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 $ 74,000 e 490,000 955,000 23,000 1,542,000 1,376,400 $2,918,400 $ 160,000 19,000 310,000 685,000 23,000 1,117,000 1,388,000 $ 2,417,000 $ 750,000 650,000 1,400,000 700,000 Total stockholders' equity 818,400 1,518,400 Total liabilities and stockholders' equity $ 2,918,400 $440,000 650,000 1,898,000 700,000 627,000 1,327,000 $ 2,417,000 Sabin Electronics Comparative Income Statement and Reconciliation Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained This Year $ 5,050,000 3,885,000 1,165,000 Last Year $ 4,388,000 3,468,000 928,000 655,000 550,000 510,000 378,000 78,000 78,000 432,000 292,000 129,600 87,600 302,400 284,400 111,000 98,000 191,400 114,400 627,000 512,600 $ 818,400 Beginning retained earnings Ending retained earnings $627,000 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 3/10, 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 $260,000.) e. The average sale period. (The inventory at the beginning of last year totaled $510,000.) The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,397,000.) h. The debt-to-equity ratio. 1. The times interest eamed ratio. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,317,000.) 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. Req 1 Req 2A Req 2B Present the balance sheet in common-size format for both this year and last year. (Round your answers to 1 decimal place.) Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Sabin Electronics Common-Size Balance Sheets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained eamings Total stockholders' equity Total liabilities and equity This Year Last Year 0.0 % % 0.0 0.0 % 0.0 % 0.0 % % 0.0 0.0 0.0 0.0 % 0.0 % Req 1 Req 2A Req 2B Present the income statement in common-size format down through net income for both this year and last year. (Round your answers to 1 decimal place.) Sabin Electronics Common-Size Income Statements This Year Last Year % Sales Cost of goods sold Gross margin 0.0 0.0 Selling and administrative expenses Net operating income 0.0 0.0 Interest expense Net income before taxes Income taxes Net income 0.0 0.0 0.0 % 0.0 %