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, $47,900; total assets, $169,400; common stock, $82,000; and retained earnings, $56,657.)

CABOT CORPORATION Income Statement For Year Ended December 31, 2017
Sales	$	452,600
Cost of goods sold		297,250
Gross profit		155,350
Operating expenses		98,700
Interest expense		5,000
Income before taxes		51,650
Income taxes		20,807
Net income	$	30,843

CABOT CORPORATION Balance Sheet December 31, 2017
Assets				Liabilities and Equity
Cash	$	18,000		Accounts payable	$	17,500
Short-term investments		9,400		Accrued wages payable		3,600
Accounts receivable, net		32,000		Income taxes payable		2,900
Notes receivable (trade)*		6,500
Merchandise inventory		38,150		Long-term note payable, secured by mortgage on plant assets		63,400
Prepaid expenses		2,550		Common stock		82,000
Plant assets, net		150,300		Retained earnings		87,500
Total assets	$	256,900		Total liabilities and equity	$	256,900

* 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.)

Answer 1

Answer of Part 1:

Current Assets = Cash + Short term Investments + Accounts Receivable, net + Notes Receivable (trade) + Merchandise Inventory + Prepaid Expenses
Current Assets = $18,000 + $9,400 + $32,000 + $6,500 + $38,150 + $2,550
Current Assets = $106,600

Current Liabilities = Accounts Payable + Accrued wages payable + Income Taxes Payable
Current Liabilities = $17,500 + $3,600 + $2,900
Current Liabilities = $24,000

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $106,600 / $24,000
Current Ratio = 4.44

Answer of Part 2:

Quick Ratio = (Current Assets – Merchandise Inventory – Prepaid Expenses) / Current Liabilities
Quick Ratio = ($106,600 - $38,150 - $2,550) / $24,000
Quick Ratio = $65,900 / $24,000
Quick Ratio = 2.75

Answer of Part 3:

Accounts Receivable = Accounts Receivable net + Notes Receivable
Accounts Receivable = $32,000 + $6,500
Accounts Receivable = $38,500

Accounts Receivable Turnover = Sales / Accounts Receivable
Accounts Receivable Turnover = $452,600 / $38,500
Accounts Receivable Turnover = 11.76

Days Sales uncollected = 365days / Accounts Receivable Turnover
Days Sales Uncollected = 365 / 11.76
Days Sales Uncollected = 31.04 days or 31 days

Answer of Part 4:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($47,900 + $38,150) / 2
Average Inventory = $43,025

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $297,250 / $43,025
Inventory Turnover = 6.91 times

Answer of Part 5:

Days Sales in Inventory = 365days / Inventory Turnover
Days Sales in Inventory = 365 / 6.91
Days Sales in Inventory = 52.82 days or 53 days