Problem 15-18 Common-Size Statements and Financial Ratios for a Loan Application [LO15-1, LO15-2, LO15-3, LO15-4] 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 $640,000 long-term loan from Gulfport State Bank, $170,000 of which will be used to bolster the Cash account and $470,000 of which will be used to modernize equipment. The companys financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 126,000 $ 290,000 Marketable securities 0 11,000 Accounts receivable, net 659,000 440,000 Inventory 1,020,000 735,000 Prepaid expenses 34,000 36,000 Total current assets 1,839,000 1,512,000 Plant and equipment, net 2,084,600 1,470,000 Total assets $ 3,923,600 $ 2,982,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 870,000 $ 440,000 Bonds payable, 12% 800,000 800,000 Total liabilities 1,670,000 1,240,000 Stockholders' equity: Common stock, $15 par 830,000 830,000 Retained earnings 1,423,600 912,000 Total stockholders equity 2,253,600 1,742,000 Total liabilities and equity $ 3,923,600 $ 2,982,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,700,000 $ 4,770,000 Cost of goods sold 4,015,000 3,590,000 Gross margin 1,685,000 1,180,000 Selling and administrative expenses 681,000 576,000 Net operating income 1,004,000 604,000 Interest expense 96,000 96,000 Net income before taxes 908,000 508,000 Income taxes (30%) 272,400 152,400 Net income 635,600 355,600 Common dividends 124,000 103,000 Net income retained 511,600 252,600 Beginning retained earnings 912,000 659,400 Ending retained earnings $ 1,423,600 $ 912,000 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. (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 $390,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) e. The average sale period. (The inventory at the beginning of last year totaled $640,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) f. The operating cycle. (Round your answers to 1 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year were $2,942,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 3 decimal places.) i. The times interest earned ratio. (Round your answers to 1 decimal place.) j. The equity multiplier. (The total stockholders equity at the beginning of last year totaled $1,732,000.) (Round your answers to 2 decimal places.) 2. For both this year and last year: a. Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) b. Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) Garrison 15e Recheck 2015-1-19, 2015-1-22, 01_28_2015_QC_CS-5198 References eBook & Resources WorksheetLearning Objective: 15-01 Prepare and interpret financial statements in comparative and common-size form.Learning Objective: 15-04 Compute and interpret financial ratios that managers use for debt management purposes. Problem 15-18 Common-Size Statements and Financial Ratios for a Loan Application [LO15-1, LO15-2, LO15-3, LO15-4]Learning Objective: 15-02 Compute and interpret financial ratios that managers use to assess liquidity. Difficulty: 1 EasyLearning Objective: 15-03 Compute and interpret financial ratios that managers use for asset management purposes. Check my work