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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 $540,000 long-term loan from Gulfport State Bank, $120,000 of which will be used to bolster the Cash account and $420,000 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 YearLast Year Assets Current assets: Cash Marketable securities Accounts receivable, net $ 86,000 190,000 22,000 340,000 635,000 26,000 529,000 960,000 22,000 Prepaid expenses Total current assets Plant and equipment, net 1,597,000 1,213,000 ,631,600 1,410,000 Total assets $3,228,600 2,623,000 Liabilities and Stockholders Equity Current iablities Bonds payable, 12% 820,000 470,000 800,000 800,000 Total liabilities 1,620,000 1,270,000 Stockholders’ equity Common stock, $15 par Retained eamings 810,000 810,000 543,000 1,608,600 1,353,000 3.228,600 2,623,000 Total stockholders equity Total liabilities and equity Sabin Electronics This Year Last Year $5,200,000 $4,470,000 8 2 3 5 6 9 WERT
Expert Answer
Answer 1.
Part a.
This Year:
Working Capital = Current Assets – Current Liabilities
Working Capital = $1,597,000 – $820,000
Working Capital = $777,000
Last Year:
Working Capital = Current Assets – Current Liabilities
Working Capital = $1,213,000 – $470,000
Working Capital = $743,000
Part b.
This Year:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $1,597,000 / $820,000
Current Ratio = 1.95
Last Year:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $1,213,000 / $470,000
Current Ratio = 2.58
Part c.
This Year:
Acid Test Ratio = (Current Assets – Inventory) / Current Liabilities
Acid Test Ratio = ($1,597,000 – $960,000) / $820,000
Acid Test Ratio = 0.78
Last Year:
Acid Test Ratio = (Current Assets – Inventory) / Current Liabilities
Acid Test Ratio = ($1,213,000 – $635,000) / $470,000
Acid Test Ratio = 1.23
Part d.
This Year:
Average Accounts Receivable = ($340,000 + $529,000) / 2
Average Accounts Receivable = $434,500
Average Collection Period = 365 / Net Sales * Average Accounts Receivable
Average Collection Period = 365 / $5,200,000 * $434,500
Average Collection Period = 30.50 days
Last Year:
Average Accounts Receivable = ($340,000 + $290,000) / 2
Average Accounts Receivable = $315,000
Average Collection Period = 365 / Net Sales * Average Accounts Receivable
Average Collection Period = 365 / $4,470,000 * $315,000
Average Collection Period = 25.72 days
Part e.
This Year:
Average Inventory = ($635,000 + $960,000) / 2
Average Inventory = $797,500
Average Sales Period = 365 / Cost of Goods Sold / Average Inventory
Average Sales Period = 365 / $3,915,000 * $797,500
Average Sales Period = 74.35 days
Last Year:
Average Inventory = ($635,000 + $540,000) / 2
Average Inventory = $587,500
Average Sales Period = 365 / Cost of Goods Sold / Average Inventory
Average Sales Period = 365 / $3,490,000 * $587,500
Average Sales Period = 61.44 days
Answer 2.
