You have just been hired as a loan officer at Westmount Bank. Your supervisor has given you a file containing a request from Hill Company, a manufacturer of computer components, for a $2,050,000 five-year loan. Financial statement data on the company for past two years are given below: Assets Current assets: Cash Temporary investments Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets HILL COMPANY Comparative Balance Sheet This Year Last Year $ 246,000 $ 318,400 0 77,000 693,000 1,001,000 61,500 462,000 616,000 46,000 2,001,500 1,518,000 2,376,500 2,284,500 $4,378,000 $3,802,500 Liabilities and Shareholders' Equity Liabilities: Current liabilities $1,002,260 $ 700,500 Bonds payable, 10% 918,000 765,000 Total liabilities 1,920,260 1,465,500 Shareholders' equity: Preferred shares, 20,000, $2.90 no par value Common shares, 50,000 475,000 475,000 1,550,000 1,550,000. Retained earnings 432,740 312,000 Total shareholders equity 2,457,740 2,337,000 Total liabilities and shareholders' equity Sales (all on account) $4,378,000 $3,802,500 HILL COMPANY Comparative Income Statement and Reconciliation of Retained Earnings This Year Last Year $3,987,500 $3,170,000 Cost of goods sold Gross margin Selling and administrative expenses Operating income Interest expense 3,190,000 2,514,500 797,500 655,500 402,500 396,500 395,000 259,000 91,800 76,500 Sales (all on account) Cost of goods sold Gross margin HILL COMPANY Comparative Income Statement and Reconciliation of Retained Earnings Selling and administrative expenses) Operating income- Interest expense Net income before taxes Income taxes (30%) Net income Dividends paid: Preferred shares Common shares Total dividends paid Net income retained Retained earnings, beginning of year This Year Last Year $3,987,500 $3,170,000 3,190,000 2,514,500 797,500 655,500 402,500 396,500 395,000 259,000 91,8001 76,500 303,200 182,500 90,960 54,750 212,240 127,750 36,500 36,500 55,000 27,500 91,500 64,000 120,740 63,750 312,000 248,250 Retained earnings, end of year $ 432,740 $ 312,000 Pat Smith, who just three years ago was appointed president of Hill Company, admits that the company has been inconsistent in its performance over the past several years. But Smith argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the past year. Smith also argues that investors have recognized the improving situation at Hill Company, as shown by the jump in the price of its common shares from $12 per share last year to $23 per share this year. Smith believes that with strong leadership and with the modernized equipment that the $2,050,000 loan will permit the company to buy, profits will be even stronger in the future. Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Hill Company's industry: Current ratio Acid-test ratio Average collection period 2.30 1.20 31 days Average sale period Return on assets 60 days 9.50% Debt-to-equity ratio 0.65 Times interest earned ratio. 5.7 Current ratio Acid-test ratio Average collection period 2.30 1.20 31 days. 60 days Average sale period Return on assets 9.50% Debt-to-equity ratio 0.65 Times interest earned ratio 5.7 Price-earnings ratio 10 Required: 1. For both this year and last year, present the balance sheet in common-size format. (Round your answers to 1 decimal place.) HILL COMPANY Comparative Balance Sheet Assets Current assets: Cash Temporary investments Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 10% Total liabilities Shareholders' equity This Year Last Year % % 0.0 0.0 0.0 % 0.0 % 0.0 % % 0.0 Current liabilities Bonds payable, 10% Total liabilities Shareholders' equity Preferred shares, 20,000, $2.40 no par value. % % 0.0 0.0 Common shares, 50,000 Retained earnings Total shareholders' equity 0 0 Total liabilities and shareholders' equity 0.0 % 0.0 % 2. For both this year and last year, present the income statement in common-size format down through net income. (Round your answers to 1 decimal place.) HILL COMPANY Comparative Income Statement Sales This Year Last Year % % Cost of goods sold Gross margin 0.0 0.0 Selling and administrative expenses Operating income 0.0 0.0 Interest expense Net income before taxes 0.0 0.0 Income taxes (30%) Net income 0.0 % 0.0 %