Selected year-end financial statements of Cabot Corporation follow. (All sales w

Question

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2014, were inventory, $55,900; total assets, $179,400; common stock, $87,000; and retained earnings, $42,844.) CABOT CORPORATION Income Statement For Year Ended December 31, 2015 Sales Cost of goods sold $452,600 298,350 Gross profit Operating expenses Interest expense 154,250 99,100 4,400 Income before taxes Income taxes 50,750 20,444 Net income $ 30,306 CABOT CORPORATIONN Balance Sheet December 31, 2015 Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade)* Merchandise inventory Prepaid expenses Plant assets, net $12,000 8,600 31,800 5,000 34,150 2,600 153,300 Liabilities and Equity Accounts payable Accrued wages payable Income taxes payable Long-term note payable, secured $15,500 3,000 4,400 by mortgage on plant assets Common stock 64,400 87,000 73,150 Retained earnings Total assets $247,450 Total liabilities and equity $247,450 * These are short-term notes receivable arising from customer (trade) sales

Explanation / Answer

1 Current ratio = Current assets / current liabilities Current assets 94150 Current liabilities 22900 Current ratio 4.11 2 Acid test ratio = Acid test assets / current liabilities Acid test assets = current assets - prepaid expense - merchandise inventory Acid test assets 57400 Current liabilities 22900 Acid test ratio 2.51 Accounts receivable turnover = net credit sales /Average accounts receivable Net sales 452600 Beginning accounts receivable 36800 Ending accounts receivable 36800 Average accounts receivable 36800 Accounts receivable turnover 12.3 3 Days sales outstanding = 365 / accounts receivable tunover Days sales outstanding 29.7 Days 4 Inventory turnover = Cost of goods sold / Average inventory Cost of goods sold 298350 Beginning inventory 55900 Ending inventory 34150 Average inventory 45025 Average inventory = (Beginning + Ending )/2 Inventory turnover 6.6 5 Days sale in inventory = 365 / inventory turnover Days sales in inventory 55 Days

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