Question

Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $55,900; total assets, $229,400; common stock, $84,000; and retained earnings, $46,084.)

CABOT CORPORATION Income Statement For Current Year Ended December 31
Sales	$	450,600
Cost of goods sold		297,150
Gross profit		153,450
Operating expenses		98,500
Interest expense		4,100
Income before taxes		50,850
Income tax expense		20,484
Net income	$	30,366

CABOT CORPORATION Balance Sheet December 31
Assets				Liabilities and Equity
Cash	$	18,000		Accounts payable	$	17,500
Short-term investments		9,600		Accrued wages payable		2,800
Accounts receivable, net		30,800		Income taxes payable		3,300
Merchandise inventory		34,150		Long-term note payable, secured by mortgage on plant assets		63,400
Prepaid expenses		2,600		Common stock		84,000
Plant assets, net		152,300		Retained earnings		76,450
Total assets	$	247,450		Total liabilities and equity	$	247,450

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.)

Answer 1

(1) Current Ratio Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current liabilities = Current Ratio $95150 / $23600 = 4.0 to 1

Current Assets = Total assets – Plant assets

           = $247450 - $152300 = $95150

Current liabilities = Accounts payable + accrued wages payable + Income tax payable

        = $17500 + $2800 + $3300 = $23600

	(2) Acid-Test Ratio Choose Numerator: / Choose Denominator: = Acid-Test Ratio Quick assets / Current liabilities = Acid-Test Ratio $58400 / $23600 = 2.5 to 1

Quick assets = Current assets – Prepaid expense – Merchandise inventory

      = $95150 - $2600 - $34150 = $58400

	(3) Days Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days Sales Uncollected Current receivables / Net sales x 365 = Days Sales Uncollected $30800 / $450600 x 365 = 24.9 days

	(4) Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover Cost of goods sold / Average inventory = Inventory Turnover $297150 / $45025 = 6.6 times

Average Inventory = (Beginning + Ending)/2

    = ($34150 + $55900)/2 = $45025

	(5) Days’ Sales in Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory Merchandise inventory / Cost of goods sold x 365 = Days’ Sales in Inventory $34150 / $297150 x 365 = 41.9 days

	(6) Debt-to-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-to-Equity Ratio Total liabilities / Total equity = Debt-to-Equity Ratio $87000 / $160450 = 0.54 to 1

Total Liabilities = Accounts payable + Accrued wages payable + Income tax payable + Long term note payable

        = $17500 + $2800 + $3300 + $63400 = $87000

Total equity = Common stock + Retained earnings

           = $84000 + $76450 = $160450

	(7) Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned Income before tax + Interest expense / Interest expense = Times Interest Earned $50850 + $4100 / $4100 = 13.4 times

	(8) Profit Margin Ratio Choose Numerator: / Choose Denominator: = Profit margin ratio Net income / Net sales = Profit margin ratio $30366 / $450600 = 6.7 %

	(9) Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover Net sales / Average total assets = Total Asset Turnover $450600 / $238425 = 1.9 times

Average total assets = (Beginning + Ending)/2

    = ($229400 + $247450)/2 = $238425

	(10) Return on Total Assets Choose Numerator: / Choose Denominator: = Return on Total Assets Net income / Average total assets = Return on Total Assets $30366 / $238425 = 12.7 %

(11) Return on Common Stockholders' Equity Choose Numerator: / Choose Denominator = Return On Common Stockholders' Equity Net income - Preferred dividends / Average common stockholders' equity = Return On Common Stockholders' Equity $30366 ekkarill92 Next > < Previous Related Solutions Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance... Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $54,900; total assets, $199,400; common stock, $86,000; and retained earnings, $30,301.) CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 455,600 Cost of goods sold 298,150 Gross profit 157,450 Operating expenses 99,200 Interest expense 5,000 Income before taxes 53,250 Income tax expense 21,451 Net income $ 31,799 CABOT CORPORATION Balance... 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