Selected year-end financial statements of Cabot Corporation follow. (All sales w
ID: 2437360 • Letter: S
Question
Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $47,900; total assets, $259,400; common stock, $86,000; and retained earnings, $36,770.)
* These are short-term notes receivable arising from customer (trade) sales.
Required:
Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity. (Do not round intermediate calculations.)
Income Statement
For Year Ended December 31, 2017 Sales $ 448,600 Cost of goods sold 296,850 Gross profit 151,750 Operating expenses 98,500 Interest expense 3,800 Income before taxes 49,450 Income taxes 19,920 Net income $ 29,530 points Complete this question by entering your answers in the tabs below Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 eBook Compute the current ratio and acid-test ratio rrent Rati Print Choose Numerator Choose DenominatorCurrent Ratio - Current ratio References 2017 0 to 1 Acid-Test Ratio Choose Numerator: Choose DenominatorAcid-Test Ratio - Acid-Test Ratio 2017 0 to 1 Req 1 and 2 Req 3
Explanation / Answer
Answer 1. Current Ratio = Current Assets / Current Liabilities Current Assets Cash 10,000 Short Term Investments 9,000 Accounts Receivables 33,600 Notes Receivable (Trade) 6,500 Merchandise Inventory 30,150 Prepaid Expenses 3,150 Total Current Assets 92,400 Current Liabilities Accounts Payable 17,500 Accrued Wages Payable 2,800 Income Tax Payable 3,700 Total Current Liabilities 24,000 Current Ratio = 92,400 / 24,000 Current Ratio = 3.85 : 1 Answer 2. Acid Test Ratio = Quick Assets / Current Liabilities Quick Assets = Total Current Assets - (Merchandise Inventory + Prepaid exp.) Quick Assets = 92,400 - (30,150 + 3,150) = $59,100 Acid Test Ratio = 59,100 / 24,000 Acid Test Ratio = 2.46 : 1 Answer 3. Days Sales Uncollected = 365 Days / Receivable Turnover Ratio Receivable Turnover Ratio = Net Credit Sales / Avg. Receivables Receivable Turnover Ratio = 448,600 / 33,600 = 13.35 times (Approx) Days Sales Uncollected = 365 Days / 13.35 = 27.34 Days Answer 4. Inventory Turnover = Cost of Goods Sold / Avg. Inventory Inventory Turnover = $296,850 / $30,150 = 9.85 Times (Approx.) Answer 5. Days Sales in Inventory = 365 / Inventory Turnover Ratio Days Sales in Inventory = 365 / 9.85 = 37.07 Days Answer 6. Debt-to-equity Ratio = Total debt / Equity Total debt = $65,400 (Long-term Notes Payables) + $24,000 (Current Liabilities) = $89,400 Equity = $86,000 (Common Stock) + $66,300 (Retained Earnings) = $152,300 Debt-to-equity Ratio = $89,400 / $152,300 = 0.59 Times (Approx.) Answer 7. Times Interest Earned = Earning before Interest & Tax / Interest Charges Times Interest Earned = $98,500 / $3,800 = 25.92 Times (Approx.) Answer 8. Profit Margin ratio = Net Income / Sales Profit Margin ratio = $29,530 / $448,600 = 6.58% (Approx.) Answer 9. Total Assets Turnover = Net Sales / Total Assets Total Assets Turnover = $448,600 / $241,700 = 1.86 times (Approx) Answer 10. Return on Total Assets = Net Profit After Taxes / Total Assets Return on Total Assets = $29,530 / $241,700 = 12.22% Answer 11. Return on Common Stockholders' Equity = (Net Profit After Tax - Pref. Div.) / Equity Return on Common Stockholders' Equity = ($29,530 - 0) / ($86,000 + $66,300) Return on Common Stockholders' Equity = 19.39% (Approx.)
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