Question
Problem 24-3 Sarasota Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock,
Problem 24-3
Sarasota Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Sarasota and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,980 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,060 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Sarasotas cash flow problems are due primarily to the companys desire to finance a $298,500 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.
| SARASOTA CORPORATION BALANCE SHEET MARCH 31 | ||||
| Assets | 2018 | 2017 | ||
| Cash | $18,050 | $12,590 | ||
| Notes receivable | 147,320 | 130,790 | ||
| Accounts receivable (net) | 132,920 | 125,940 | ||
| Inventories (at cost) | 105,990 | 49,780 | ||
| Plant & equipment (net of depreciation) | 1,445,010 | 1,412,350 | ||
| Total assets | $1,849,290 | $1,731,450 | ||
| Liabilities and Owners Equity | ||||
| Accounts payable | $78,710 | $90,810 | ||
| Notes payable | 76,570 | 61,260 | ||
| Accrued liabilities | 3,810 | 1,880 | ||
| Common stock (130,000 shares, $10 par) | 1,301,250 | 1,293,620 | ||
| Retained earningsa | 388,950 | 283,880 | ||
| Total liabilities and stockholders equity | $1,849,290 | $1,731,450 | ||
| aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018. | ||||
| SARASOTA CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31 | ||||
| 2018 | 2017 | |||
| Sales revenue | $3,000,740 | $2,718,060 | ||
| Cost of goods solda | 1,528,300 | 1,433,820 | ||
| Gross margin | 1,472,440 | 1,284,240 | ||
| Operating expenses | 868,470 | 779,910 | ||
| Income before income taxes | 603,970 | 504,330 | ||
| Income taxes (40%) | 241,588 | 201,732 | ||
| Net income | $362,382 | $302,598 | ||
| aDepreciation charges on the plant and equipment of $99,500 and $102,710 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold. | ||||
(a) Compute the following items for Sarasota Corporation. (Round answer to 2 decimal places, e.g. 2.25 or 2.25%.)
| (1) | Current ratio for fiscal years 2017 and 2018. | |
| (2) | Acid-test (quick) ratio for fiscal years 2017 and 2018. | |
| (3) | Inventory turnover for fiscal year 2018. | |
| (4) | Return on assets for fiscal years 2017 and 2018. (Assume total assets were $1,690,000 at 3/31/16.) | |
| (5) | Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018. |
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Leading The Internal Audit Function
Authors: Lynn Fountain
1st Edition
0367568004, 9780367568009
