Question

Wildhorse Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Wildhorse and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,960 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $6,030 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Wildhorse’s cash flow problems are due primarily to the company’s desire to finance a $299,210 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

Wildhorse Corporation Balance Sheet March 31
Assets		2021		2020
Cash		$18,280		$12,630
Notes receivable		147,800		132,850
Accounts receivable (net)		131,830		124,830
Inventories (at cost)		103,960		50,250
Plant & equipment (net of depreciation)		1,441,730		1,408,680
Total assets		$1,843,600		$1,729,240
Liabilities and Owners’ Equity
Accounts payable		$78,440		$91,050
Notes payable		75,950		62,110
Accrued liabilities		11,730		6,630
Common stock (130,000 shares, $10 par)		1,312,780		1,304,780
Retained earningsa		364,700		264,670
Total liabilities and stockholders’ equity		$1,843,600		$1,729,240
aCash dividends were paid at the rate of $1 per share in fiscal year 2020 and $2 per share in fiscal year 2021.

Wildhorse Corporation Income Statement For the Fiscal Years Ended March 31
		2021		2020
Sales revenue		$3,014,860		$2,692,590
Cost of goods solda		1,543,140		1,437,230
Gross margin		1,471,720		1,255,360
Operating expenses		861,510		774,820
Income before income taxes		610,210		480,540
Income taxes (40%)		244,084		192,216
Net income		$366,126		$288,324
aDepreciation charges on the plant and equipment of $100,890 and $103,120 for fiscal years ended March 31, 2020 and 2021, respectively, are included in cost of goods sold.

(a)

Compute the following items for Wildhorse Corporation. (Round answers to 2 decimal places, e.g. 2.25 or 2.25%.)

1.		Current ratio for fiscal years 2020 and 2021.
2.		Acid-test (quick) ratio for fiscal years 2020 and 2021.
3.		Inventory turnover for fiscal year 2021.
4.		Return on assets for fiscal years 2020 and 2021. (Assume total assets were $1,677,350 at 3/31/19.)
5.		Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2020 to 2021.

				2020			2021
1.		Current ratio		enter the ratio rounded to 2 decimal places	:1		enter the ratio rounded to 2 decimal places	:1
2.		Acid-test (quick) ratio		enter the ratio rounded to 2 decimal places	:1		enter the ratio rounded to 2 decimal places	:1
3.		Inventory turnover					enter the inventory turnover rounded to 2 decimal places	times
4.		Return on assets		enter the return on assets in percentages rounded to 2 decimal places	%		enter the return on assets in percentages rounded to 2 decimal places	%

5.		Percent Changes		Percent Increase
		Sales revenue		enter percentages rounded to 2 decimal places	%
		Cost of goods sold		enter percentages rounded to 2 decimal places	%
		Gross margin		enter percentages rounded to 2 decimal places	%
		Net income after taxes		enter percentages rounded to 2 decimal places	%

Answer 1

(a)
1	Current ratio=Current assets/Current liabilities
	Current assets=Total assets-Plant & equipment (net of depreciation)
	Current liabilities=Accounts payable+Notes payable+Accrued liabilities
						2021	2020
	Total assets				a	1843600	1729240
	Plant & equipment (net of depreciation)				b	1441730	1408680
	Current assets				c=a-b	401870	320560
	Accounts payable				d	78440	91050
	Notes payable				e	75950	62110
	Accrued liabilities				f	11730	6630
	Current liabilities				g=d+e+f	166120	159790
	Current ratio				c/g	2.42	2.01
2	Acid-test (quick) ratio=Quick assets/Current liabilities
	Quick assets=Current assets-Inventories
						2021	2020
	Current assets				a	401870	320560
	Inventories				b	103960	50250
	Quick assets				c=a-b	297910	270310
	Current liabilities				d	166120	159790
	Acid-test (quick) ratio				c/d	1.79	1.69
3	Inventory turnover==Cost of goods sold/Average inventories
	Average inventories=(Beg. Inventories+End. Inventories)/2=(50250+103960)/2=$ 77105
	Inventory turnover==1543140/77105=20.01
4	Return on assets=Net income/Average total assets
	Average total assets=(Beg. total assets+End. total assets)/2
					2021	2020
	Net income			a	366126	288324
	Beg. Total assets			b	1729240	1677350
	End. Total assets			c	1843600	1729240
	Average Total assets			d=(b+c)/2	1786420	1703295
	Return on assets			a/d	20.49%	16.93%
5				2021	2020	$ Increase	% increase
				a	b	c=a-b	c/b
	Sales revenue			3014860	2692590	322270	11.97%
	Cost of goods sold			1543140	1437230	105910	7.37%
	Gross margin			1471720	1255360	216360	17.23%
	Net income after taxes			366126	288324	77802	26.98%