Question

Problem 13-4A Calculation of financial statement ratios LO P3 Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $50,900; total assets, $169,400; common stock, $89,000; and retained earnings, $44,555.)

CABOT CORPORATION Income Statement For Year Ended December 31, 2017
Sales	$	452,600
Cost of goods sold		297,750
Gross profit		154,850
Operating expenses		98,900
Interest expense		4,800
Income before taxes		51,150
Income taxes		20,605
Net income	$	30,545

CABOT CORPORATION Balance Sheet December 31, 2017
Assets				Liabilities and Equity
Cash	$	22,000		Accounts payable	$	15,500
Short-term investments		8,000		Accrued wages payable		4,800
Accounts receivable, net		33,800		Income taxes payable		4,000
Notes receivable (trade)*		7,000
Merchandise inventory		34,150		Long-term note payable, secured by mortgage on plant assets		69,400
Prepaid expenses		2,550		Common stock		89,000
Plant assets, net		150,300		Retained earnings		75,100
Total assets	$	257,800		Total liabilities and equity	$	257,800

(Do not round intermediate calculations.)

Compute the current ratio and acid-test ratio.

	(1) Current Ratio Choose Numerator: / Choose Denominator: = Current Ratio / = Current ratio 2017: / = to 1 (2) Acid-Test Ratio Choose Numerator: / Choose Denominator: = Acid-Test Ratio / = Acid-Test Ratio 2017: / = to 1

Compute the days' sales uncollected.

	(3) Days' Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days Sales Uncollected / x = Days sales uncollected 2017: / x = days

Compute the inventory turnover.

	(4) Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover / = Inventory turnover 2017: / = times

Compute the days' sales in inventory.

	(5) Days’ Sales in Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory / x = Days’ sales in inventory 2017: / x = days

Compute the debt-to-equity ratio.

	(6) Debt-to-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-to-Equity Ratio / = Debt-to-equity ratio 2017: / = to 1

Compute the times interest earned.

	(7) Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned + / = Times interest earned 2017: + / = times

Answer 1

Current ratio Numerator Denominator Current ratio Years Current assets Current liabilities Current ratio 2017 1,07,500 24,300 4.42 to 1

Acid Test Ratio Denominator Quick assets/Current liabilitiesAcid Test Ratio 24,300 Numerator | = | Acid Test Ratio 2017 63,800 2.63 to1

Days Sales Uncollected Days Sales Uncollected Years Numerator DenominatorX Days I/1 Net Sales 365E Accounts Receivable 2017 452600 X 36527.26 days

Inventory turn over ratio Inventory Turn over ratio Inventory Turn over ratio Numerator Denominator Average Inventory 42,525 Cost of goods sold / = | 2017 2,97,750 7.0 Times

Average Inventory Beginning Inventory Ending Inventory/ 2 2 Average Inventory 42525 2017 50,900 34,150

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Debt To Equity Ratio Denominator Numerator |=| Debt To Equity DebtShareholder EquityDebt To Equity 93.7001,64,100 Years 2017 0.57 to 1

Times interest Earned Ratio / Denominator = Times interest Earned Income befor tax nterest Expenses Interest Expenses Times interest Earned Numerator 2017 51150 4800 4800 11.66