Problem 16-18 (Algo) Common-Size Statements and Financial Ratios for a Loan Application [LO16-1, LO16-2, LO16-3, LO16-4] 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 $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 company's financial statements for the two most recent years follow: Assets Current assets: Cash Marketable securities Sabin Electronics Comparative Balance Sheet This Year Last Year $ 130,000 0 $ 300,000 12,000 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 Sabin Electronics. 672,000 1,095,000 34,000 1,931,000 2,099,400 $ 4,030,400 $875,000 750,000 1,625,000 840,000 1,565,400 2,405,400 $ 4,030,400 Comparative Income Statement and Reconciliation: 450,000 745,000 37,000 1,544,000 1,520,000 $ 3,064,000 $450,000 750,000 1,200,000 840,000 1,024,000 1,864,000 $ 3,064,000 Sales Sabin Electronics Comparative Income Statement and Reconciliation 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 Beginning retained earnings Ending retained earnings This Year $5,750,000 4,025,000 1,725,000 683,000 Last Year $ 4,800,000 3,600,000 1,200,000 578,000 622,000 1,042,000 90,000 90,000 952,000 532,000 285,600 159,600 666,400 372,400 125,000 104,000 268,400 755,600 541,400 1,024,000 $ 1,565,400 $ 1,024,000 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 $400,000) e. The average sale period. (The inventory at the beginning of last year totaled $650,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $3,024,000.) 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 $1,854,000.) 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. Complete this question by entering your answers in the tabs below. 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 $400,000.) (Round your intermediate calculations and final answers to 2 decimal place. Use 365 days in a year.) e. The average sale period. (The inventory at the beginning of last year totaled $650,000.) (Round your intermediate calculations and final answers to 2 decimal place. Use 365 days in a year.) f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place. Use 365 days in a year.) g. The total asset turnover. (The total assets at the beginning of last year were $3,024,000.) (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.) j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,854,000.) (Round your answers to 2 decimal places.) Show less A a. Working capital b. Current ratio c. Acid-test ratio This Year Last Year d. Average collection period days e. Average sale period days days days f. Operating cycle days days g. Total asset turnover h. Debt-to-equity ratio i. Times interest earned ratio j. Equity multiplier Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Sabin Electronics Common-Size Balance Sheets 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 This Year Last Year % % 200 % % % 10 % % Present the income statement in common-size format down through net income for both this answers to 1 decimal place.) Sabin Electronics Common-Size Income Statements Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income This Year Last Year % % % %