Question 39:

Mary Walker, president of Rusco Company, considers $38,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $33,000 in cash was available at the end of 2015. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.

Rusco Company Comparative Balance Sheet July 31, 2015 and 2014
	2015		2014
Assets
Current assets:
Cash	$	33,000	$	54,600
Accounts Receivable		221,600		233,400
Inventory		266,200		206,800
Prepaid expenses		19,600		36,600
Total current assets		540,400		531,400
Long-term investments		144,000		210,000
Plant and equipment		896,000		768,000
Less accumulated depreciation		219,000		195,400
Net plant and equipment		677,000		572,600
Total assets	$	1,361,400	$	1,314,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	191,200	$	249,800
Accrued liabilities		9,800		18,600
Income taxes payable		56,400		48,000
Total current liabilities		257,400		316,400
Bonds Payable		254,000		0
Total liabilities		511,400		316,400
Stockholders equity:
Common stock		717,000		690,000
Retained earnings		133,000		307,600
Total stockholders' equity		850,000		997,600
Total liabilities and stockholders' equity	$	1,361,400	$	1,314,000

Rusco Company Income Statement For the Year Ended July 31, 2015
Sales		$	1,160,000
Cost of goods sold			725,000
Gross margin			435,000
Selling and administrative expenses			310,300
Net operating income			124,700
Nonoperating items:
Gain on sale of investments	$29,000
Loss on sale of equipment	(9,600)		19,400
Income before taxes			144,100
Income taxes			43,140
Net income		$	100,960

The following additional information is available for the year 2015.

a.	The company declared and paid a cash dividend.
b.	Equipment was sold during the year for $58,400. The equipment had originally cost $126,000 and had accumulated depreciation of $58,000.
c.	Long-term investments that had cost $66,000 were sold during the year for $95,000.
d.	The company did not retire any bonds payable or repurchase any of its common stock.

Required:
1.	Using the indirect method, compute the net cash provided by operating activities for 2015. (Negative amount should be indicated by a minus sign.)

2.	Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for 2015. (List any deduction in cash and cash outflows as negative amounts.)

3.	Compute free cash flow for 2015. (Negative amount should be indicated by a minus sign.)

Question 44:

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 $690,000 long-term loan from Gulfport State Bank, $195,000 of which will be used to bolster the Cash account and $495,000 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	$	146,000	$	340,000
Marketable securities		0		16,000
Accounts receivable, net		724,000		490,000
Inventory		1,135,000		785,000
Prepaid expenses		38,000		41,000
Total current assets		2,043,000		1,672,000
Plant and equipment, net		2,229,400		1,480,000
Total assets	$	4,272,400	$	3,152,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	895,000	$	410,000
Bonds payable, 12%		850,000		850,000
Total liabilities		1,745,000		1,260,000
Stockholders' equity:
Common stock, $15 par		840,000		840,000
Retained earnings		1,687,400		1,052,000
Total stockholders equity		2,527,400		1,892,000
Total liabilities and equity	$	4,272,400	$	3,152,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,950,000	$	4,920,000
Cost of goods sold		4,065,000		3,640,000
Gross margin		1,885,000		1,280,000
Selling and administrative expenses		691,000		586,000
Net operating income		1,194,000		694,000
Interest expense		102,000		102,000
Net income before taxes		1,092,000		592,000
Income taxes (30%)		327,600		177,600
Net income		764,400		414,400
Common dividends		129,000		108,000
Net income retained		635,400		306,400
Beginning retained earnings		1,052,000		745,600
Ending retained earnings	$	1,687,400	$	1,052,000

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. (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 $440,000.) (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 $690,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)

f.	The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)

g.	The total asset turnover. (The total assets at the beginning of last year were $3,112,000.) (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 $1,882,000.) (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).)