Sales $ 5,550,000 $ 4,680,000 Cost of goods sold 3,985,000 3,560,000 Gross margin 1,565,000 1,120,000 Selling and administrative expenses 675,000 570,000 Net operating income 890,000 550,000 Interest expense 96,000 96,000 Net income before taxes 794,000 454,000 Income taxes (30%) 238,200 136,200 Net income 555,800 317,800 Common dividends 121,000 100,000 Net income retained 434,800 217,800 Beginning retained earnings 907,000 689,200 Ending retained earnings $ 1,341,800 $ 907,000 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. g. The total asset turnover. (The total assets at the beginning of last year were $2,890,000.) h. The debt-to-equity ratio. i. The times interest earned ratio. j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,697,000.)
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 $610,000 long-term loan from Gulfport State Bank, $155,000 of which will be used to bolster the Cash account and $455,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
Sabin Electronics | ||||
Comparative Balance Sheet | ||||
This Year | Last Year | |||
Assets | ||||
Current assets: | ||||
Cash | $ | 114,000 | $ | 260,000 |
Marketable securities | 0 | 29,000 | ||
620,000 | 410,000 | |||
Inventory | 1,055,000 | 705,000 | ||
Prepaid expenses | 30,000 | 33,000 | ||
Total current assets | 1,819,000 | 1,437,000 | ||
Plant and equipment, net | 1,977,800 | 1,480,000 | ||
Total assets | $ | 3,796,800 | $ | 2,917,000 |
Liabilities and |
||||
Liabilities: | ||||
Current liabilities | $ | 855,000 | $ | 410,000 |
Bonds payable, 12% | 800,000 | 800,000 | ||
Total liabilities | 1,655,000 | 1,210,000 | ||
Stockholders' equity: | ||||
Common stock, $15 par | 800,000 | 800,000 | ||
1,341,800 | 907,000 | |||
Total stockholders’ equity | 2,141,800 | 1,707,000 | ||
Total liabilities and stockholders' equity | $ | 3,796,800 | $ | 2,917,000 |
Sabin Electronics | ||||
Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales | $ | 5,550,000 | $ | 4,680,000 |
Cost of goods sold | 3,985,000 | 3,560,000 | ||
Gross margin | 1,565,000 | 1,120,000 | ||
Selling and administrative expenses | 675,000 | 570,000 | ||
Net operating income | 890,000 | 550,000 | ||
Interest expense | 96,000 | 96,000 | ||
Net income before taxes | 794,000 | 454,000 | ||
Income taxes (30%) | 238,200 | 136,200 | ||
Net income | 555,800 | 317,800 | ||
Common dividends | 121,000 | 100,000 | ||
Net income retained | 434,800 | 217,800 | ||
Beginning retained earnings | 907,000 | 689,200 | ||
Ending retained earnings | $ | 1,341,800 | $ | 907,000 |
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.
g. The total asset turnover. (The total assets at the beginning of last year were $2,890,000.)
h. The debt-to-equity ratio.
i. The times interest earned ratio.
j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,697,000.)
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