Modern Building Supply sells various building materials to retail outlets. The c

Question

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:

     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.

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:

Average collection period. (The accounts receivable at the beginning of last year totaled $242,000.)(Do not round intermediate calculations. Round your answers to 1 decimal place. Use 365 days in a year.)

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.)

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 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:

Explanation / Answer

Formula This Year Last year Calculation value Calculation value Current assets - current liabilities 1481000-815000 666000 1058000-438000 620000 Current assets / curent liabilities 1481000/815000 1.82 1058000/438000 2.42 (current assets - inventory - prepaid expenses) / current liabilitites (1481000-949000-15000)/815000 0.63 (1058000-590000-22000)/438000 1.02 (Average net accounts receivable / Net sales on account) * 365 days (((291000+465000)/2)/5013000)*365 27.5 (((242000+291000)/2)/4367000)*365 22.3 (average inventory / cost of goods sold) * 365 days (((590000+949000)/2)/3856000)*365 72.8 (((514000+590000)/2)/34320000)*365 5.9 Total liabilties / total equity 1432000/1678610 0.85 1055000/1535830 0.69 Earning before interest and tax / interest expense 519000/61700 8.4 389000/61700 6.3 Modern Building Supply Common-Size Balance Sheets Assets This Year % last Year % Current assets: Cash 52000 1.67% 140000 5.40% Marketable Securities 0 0.00% 15000 0.58% Accounts receivable , net 465000 14.95% 291000 11.23% inventory 949000 30.51% 590000 22.77% Prepaid expenses 15000 0.48% 22000 0.85% Total current assets 1481000 47.61% 1058000 40.84% Plant and equipment, net 1629610 52.39% 1532830 59.16% Total Assets 3110610 100.00% 2590830 100.00% Liabilities and Stockholders Equity Laibilities Current Liabilties 815000 26.20% 438000 16.91% Bonds Payable, 10% 617000 19.84% 617000 23.81% Total Liabilties 1432000 46.04% 1055000 40.72% Stockholders equity: Preferred stock, $25 par, 7% 335000 10.77% 335000 12.93% Common stock, $10 par 515000 16.56% 515000 19.88% Retained earnings 828610 26.64% 685830 26.47% Total stockholders equity 1678610 53.96% 1535830 59.28% Total liabilities and stockholders equity 3110610 100.00% 2590830 100.00% Modern Building Supply Comparative Income Statement and Reconciliation This Year % last Year % Sales 5013000 100.00% 4367000 100.00% Cost of goods sold 3856000 76.92% 3432000 78.59% gross margin 1157000 23.08% 935000 21.41% selling and administrative expenses 638000 12.73% 546000 12.50% net operating income 519000 10.35% 389000 8.91% interest expense 61700 1.23% 61700 1.41% Net income before taxes 457300 9.12% 327300 7.49% Income tax expenses 182920 3.65% 130920 3.00% net income 274380 5.47% 196380 4.50%

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