Selected year-end financial statements of Cabot Corporation follow. (All sales w
ID: 2525368 • Letter: S
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Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit, selected balance sheet amounts at December 31, 2016, were inventory, $56,900; total assets, $229,400; common stock, $88,000; and retained earnings, $41,822.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses nterest expense Income before taxes Income taxes Net income 455,600 297,950 157,650 99,400 4,700 53,550 21,572 $ 31,978 CABOT CORPORATION Balance Sheet December 31, 2017 Liabilities and Equity Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade)* Merchandise inventory 22,000 Accounts payable 29,600 Income taxes payable 34,150 Long-term note payable, secured by $ 16,500 3,600 3,300 8,800 Accrued wages payable 6,000 68,400 mortgage on plant assets Prepaid expenses Plant assets, net Total assets 2,750 Common stock 150,300 Retained earnings 88,000 73,800 253,600 253,600 Total liabilities and equity *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.)Explanation / Answer
Answer of Part 1:
Current Assets = Cash + Short term Investment + Accounts Receivable + Notes Receivable + Merchandise Inventory + Prepaid Expenses
Current Assets = $22,000 + $8,800 + $29,600 + $6,000 + $34,150 + $2,750
Current Assets = $103,300
Current Liabilities = Accounts Payable + Accured Wages Payable + Income Tax Payable
Current Liabilities = $16,500 + $3,600 + $3,300
Current Liabilities = $23,400
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $103,300 / $23,400
Current Liabilities = 4.41:1
Answer of Part 2:
Acid Test Ratio= (Current Assets – Merchandise Inventory – Prepaid Expenses) / Current Liabilities
Acid Test ratio = ($103,300 - $34,150 - $2,750) / $23,400
Acid Test Ratio = $66,400 / $23,400
Acid Test Ratio = 2.84:1
Answer of Part 3:
Days Sales Collected = (29,600 + 6,000) / 455,600 * 365
Days Sales Collected = 35,600 / 455,600 * 365
Days Sales Collected = 28.53 or 29 days
Answer of Part 4:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($56,900 + $34,150) /2
Average Inventory = $45,525
Inventory Turnover = Cost of goods sold / Average Inventory
Inventory Turnover = $297,950 / $45,525
Inventory Turnover = 6.54 times
Answer of Part 5:
Days’ Sales in Inventory = 365 / Inventory Turnover Ratio
Days’ Sales in Inventory = 365 / 6.54
Days’ Sales in Inventory = 55.81 or 56 days
Answer of Part 6:
Debt to Equity = Total Debt / Total Equity
Total Debt = $16,500 + $3,600 + $3,300 + $68,400
Total Debt = $91,800
Total Equity = $88,000 + $73,800
Total Equity = $161,800
Debt to Equity = 91,800 / 161,800
Debt to Equity = 0.57 times
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