Question

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $51,900; total assets, $189,400; common stock, $87,000; and retained earnings, $37,214.)

CABOT CORPORATION
Income Statement
For Year Ended December 31, 2017

Sales	$451,600
Cost of goods sold	297,450
Gross profit	154,150
Operating expenses	99,500
Interest expense	4,100
Income before taxes	50,550
Income taxes	20,364
Net income	$30,186

CABOT CORPORATION
Balance Sheet
December 31, 2017

Assets		Liabilities and Equity
Cash	$16,000	Accounts payable	$16,500
Short-term investments	9,400	Accrued wages payable	3,400
Accounts receivable, net	28,800	Income taxes payable	2,900
Notes receivable (trade)*	5,000
Merchandise inventory	34,150	Long-term note payable, secured by mortgage on plant assets	71,400
Prepaid expenses	2,950	Common stock	87,000
Plant assets, net	152,300	Retained earnings	67,400
Total assets	$248,600	Total liabilities and equity	$248,600

* 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.)

Compute the current ratio and acid-test ratio.

	(1) Current Ratio Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current liabilities = Current ratio 2017: / = 0 to 1 (2) Acid-Test Ratio Choose Numerator: / Choose Denominator: = Acid-Test Ratio / = Acid-Test Ratio 2017: / = 0 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 = 0 days

Compute the inventory turnover.

Answer 1

1	Current ratio
	Current assets
	Cash	16000
	Short term investment	9400
	Account receivable	28800
	Note receivable	5000
	Inventory	34150
	Prepaid expenses	2950
	Total current assets	96300
	Current liabilities
	Accounts payable	16500
	Accrued wages payable	3400
	Income tax payable	2900
	Total current liabilities	22800
	Current Ratio = Current Assets ÷ Current Liabilities	96300/22800	4.22
2	Acid test ratio
	Quick assets
	Cash	16000
	Short term investment	9400
	Account receivable	28800
	Note receivable	5000
	Total quick assets	59200
	Current liabilities
	Accounts payable	16500
	Accrued wages payable	3400
	Income tax payable	2900
	Total current liabilities	22800
	Acid Test Ratio = Quick Assets ÷ Current Liabilities	59200/22800	2.60
3	Days' sales uncollected
	Credit sales	451600
	Account receivable	28800
	Days' sales uncollected = (account receivable/net sales)*365	(28800/451600)*365	23 days
4	Inventory turnover
	Cost of goods sold	297450
	Average inventory ((51900+34150)/2)	43025
	Inventory Turnover = Cost of Sales ÷ Average Inventory	297450/43025	6.91