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, $239,400; common stock, $88,000; and retained earnings, $31,255.) CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 453,600 Cost of goods sold 298,450 Gross profit 155,150 Operating expenses 99,500 Interest expense 4,500 Income before taxes 51,150 Income tax expense 20,605 Net income $ 30,545 CABOT CORPORATION Balance Sheet December 31 Assets Liabilities and Equity Cash $ 14,000 Accounts payable $ 16,500 Short-term investments 8,600 Accrued wages payable 3,200 Accounts receivable, net 33,800 Income taxes payable 4,100 Merchandise inventory 36,150 Long-term note payable, secured by mortgage on plant assets 70,400 Prepaid expenses 3,150 Common stock 88,000 Plant assets, net 148,300 Retained earnings 61,800 Total assets $ 244,000 Total liabilities and equity $ 244,000 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

Ans.	Balance sheet
	Assets	2018	Liabilities & Equity	2018
	Cash	$14,000	Accounts payable	$16,500
	Short - term investments	$8,600	Accrued wages payable	$3,200
	Accounts receivables	$33,800	Income tax payable	$4,100
	Merchandise inventory	$36,150	Current liabilities	$23,800
	Prepaid expenses	$3,150	Long term Notes payable	$70,400
	Total current assets (a)	$95,700	Total liabilities (a)	$94,200
	Plant assets net	$148,300	Common stock	$88,000
	Total fixed assets (b)	$148,300	Retained earnings	$61,800
			Total Equity (b)	$149,800
	Total assets (a+b)	$244,000	Total liabilities and Equity (a + b)	$244,000
Ans. 1	Current ratio   =   Total current assets / Total current liabilities
	$95,700 / $23,800
	4.02 to 1
Ans. 2	Acid test ratio   =   (Total current assets - Inventory - Prepaid expenses) / Total current liabilities
	($95,700 - $36,150 - $3,150) / $23,800
	$56,400 / $23,800
	2.37 to 1
Ans. 3	Days sales uncollected = Accounts receivables / Net credit sales * No. of days in year
	$33,800 / $453,600 * 365
	27.20	days
Ans. 4	Inventory turnover = Cost of goods sold / Average Inventory
	$298,450 / $46,025
	6.48	times
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	($55,900 + $36,150) / 2
	$46,025
Ans. 5	Days sales in inventory = Ending inventory / Cost of goods sold * No. of days in year
	$36,150 / $298,450 * 365
	44.21	days
Ans. 6	Debt to equity ratio   =   Total liabilities / Total stockholder's equity
	$94,200 / $149,800
	0.63 : 1
Ans. 7	Time interest earned =(Income before taxes + Interest expenses) / Interest expenses
	($51,150 + $4,500) / $4,500
	$55,650 / $4,500
	12.37	times
Ans. 8	Profit Margin =   Net income / Sales * 100
	$30,545 / $453,600 * 100
	6.73%
Ans. 9	Total assets turnover = Sales / Average operating assets
	$453,600 / $241,700
	1.88	times
	*Average assets = (Beginning assets + Ending assets) / 2
	($239,400 + $244,000) / 2
	$241,700
Ans. 10	Return on investment (ROI) =   Net income / Average assets * 100
	$30,545 / $241,700 * 100
	12.64%
Ans. 11	Return on Common stockholder's equity =   Net income / Average Common stockholder's equity * 100
	$30,545 / $134,527.50 * 100
	22.71%
	*Beginning equity = Beginning common stock + Beginning retained earnings
	$88,000 + $31,255
	$119,255
	* Average Stockholder's equity =   (Beginning equity + Ending equity) / 2
	($119,255 + $149,800) / 2
	$134,527.50