Problem 14-18 Common-Size Statements and Financial Ratios for a Loan Application (LO14-1, LO14-2, LO14-3, LO14-4] 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 $550,000 long-term loan from Gulfport State Bank, $125,000 of which will be used to bolster the Cash account and $425,000 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 90,000 0 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 Donde payable, 128 Total liabilities Stockholders' equity! Common stock, $15 par Retinad Parning $42,000 995,000 22,000 1.649.000 1.638,000 $ 3,287,000 200,000 23,000 350,000 645,000 27,000 1.245,000 1.420,000 $ 2,665,000 825,000 850,000 1,675,000 S 480,000 850,000 1,330,000 740,000 872.000 740,000 599.000 Check my world Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 872,000 1,612,000 3,287,000 595,000 1,335,000 $2,665,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,250,000 Cost of goods sold $4,500,000 13.925,000 Gross margin 3,500,000 1, 325,000 1,000,000 Selling and administrative expenses 663,000 558,000 Net operating income 662,000 442,000 Interest expense 102,000 102,000 Net Income before taxes 560,000 340,000 Income taxes (30%) 168,000 102.000 Net income 392,000 238.000 Common dividende 115,000 94,000 Net Income retained 277,000 144,000 Beginning retained earnings 595,000 451.000 Ending retained earnings 872.000 S 595,000 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 annroaching the bank about the loan Paul has asked vou to compute the following ratios for both this vear and last year: Check my work 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 $300,000.) e. The average sale period. (The inventory at the beginning of last year totaled $550,000) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2.570,000.) h. The debt-to-equity ratio. 1. The times interest earned ratio. J. The equity multiplier (The total stockholders' equity at the beginning of last year totaled $1.325,000.) 2. For both this year and last year: a. Present the balance sheet in common-size format. b. Present the income statement in common-size format down through net income. Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Reg 28 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: Che a. The amount of working capital. b. The current ratio. (Round your answers to 2 decimal places.) C. The acid-test ratio. (Round your answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $300,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $550,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) 1. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year were $2,570,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) 1. The times interest earned ratio. (Round your answers to 2 decimal places.) 1. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,325,000.) (Round your answers to 2 decimal places.) Show less This Year Last Year a. Working capital b. Current ratio c. Acid-test ratio d. Average collection period e. Average sale period f. Operating cycle 9. Total asset turnover h. Debt-to-equity ratio Times interest earned ratio days days days days days days Present the balance sheet in common-size format. (Round your answers to 1 decimal place.) Last Year 1 % Sabin Electronics Common-Size Balance Sheets This Year 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, S15 par % E % Tolai 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 equity Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Present the income statement in common-size format down through net income. (Round your answers to 1 decimal place.) Last Year Sabin Electronics Ww. MM Common-Size Income Statements This Year Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income