Common-Size Statements and Financial Ratios for Creditors

Sigchi4life
Category:
Other
Price: $10 USD

Question description

Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow: Modern Building Supply Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 52,000 $ 138,000 Marketable securities 0 18,000 Accounts receivable, net 476,000 294,000 Inventory 934,000 586,000 Prepaid expenses 20,000 24,000 Total current assets 1,482,000 1,060,000 Plant and equipment, net 1,743,484 1,587,082 Total assets $ 3,225,484 $ 2,647,082 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 812,000 $ 431,000 Bonds payable, 9% 601,000 601,000 Total liabilities 1,413,000 1,032,000 Stockholders equity: Preferred stock, $25 par, 7% 382,500 382,500 Common stock, $10 par 512,000 512,000 Retained earnings 917,984 720,582 Total stockholders equity 1,812,484 1,615,082 Total liabilities and stockholders equity $ 3,225,484 $ 2,647,082 Modern Building Supply Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,018,000 $ 4,364,000 Cost of goods sold 3,869,000 3,433,000 Gross margin 1,149,000 931,000 Selling and administrative expenses 643,000 544,000 Net operating income 506,000 387,000 Interest expense 54,090 54,090 Net income before taxes 451,910 332,910 Income taxes (30%) 135,573 99,873 Net income 316,337 233,037 Dividends paid: Preferred dividends 26,775 26,775 Common dividends 92,160 71,680 Total dividends paid 118,935 98,455 Net income retained 197,402 134,582 Retained earnings, beginning of year 720,582 586,000 Retained earnings, end of year $ 917,984 $ 720,582 During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account. Assume that the following ratios are typical of companies in the building supply industry: Current ratio 2.5 Acid-test ratio 1.2 Average collection period 18 days Average sale period 50 days Debt-to-equity ratio 0.75 Times interest earned 6.0 Return on total assets 10 % Price-earnings ratio 9 Required: 1. Linden State Bank is uncertain whether the loan should be made. To assist it in making a decision, you have been asked to compute the following amounts and ratios for both this year and last year: a. Working capital. (Omit the "$" sign in your response.) This year Last year Working capital $ $ b. Current ratio. (Round your answers to 2 decimal places.) This year Last year Current ratio c. Acid-test ratio. (Round your answers to 2 decimal places.) This year Last year Acid-test ratio d. Average collection period. (The accounts receivable at the beginning of last year totaled $256,000.) (Do not round intermediate calculations. Round your answers to 1 decimal place. Use 365 days in a year.) This year Last year Average collection period days days e. Average sale period. (The inventory at the beginning of last year totaled $512,000.) (Do not round intermediate calculations. Round your answers to 1 decimal place. Use 365 days in a year.) This year Last year Average sale period days days f. Debt-to-equity ratio. (Round your answers to 2 decimal places.) This year Last year Debt-to-equity ratio g. Times interest earned. (Round your answers to 1 decimal place.) This year Last year Times interest earned 2. For both this year and last year: a. Present the balance sheet in common-size form. (Round your answers to 1 decimal place. Leave no cells blank - be certain to enter "0" wherever required. Omit the "%" sign in your response.) Modern Building Supply Common-Size Balance Sheets This Year Last Year Assets Current assets: Cash % % Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets % % Liabilities and Stockholders' equity Liabilities: Current liabilities % % Bonds payable, 9% Total liabilities Stockholders' equity: Preferred stock, $25 par, 7% Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and equity % % b. Present the income statement in common-size form down through net income. (Input all amounts as positive values. Round your answers to 1 decimal place. Omit the "%" sign in your response.) Modern Building Supply Common-Size Income Statements This Year Last Year Sales % % Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income % %

Tutor Answer

(Top Tutor) Daniel C.
(997)
School: Boston College
PREMIUM TUTOR
Studypool has helped 1,244,100 students
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1821 tutors are online

Related Other questions

03/25/2015
12/11/2013
12/11/2013
12/11/2013
12/11/2013
12/11/2013
12/11/2013
12/10/2013

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors