Question

In: Accounting

Vaughn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,...

Vaughn 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 Vaughn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,180 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,970 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Vaughn’s cash flow problems are due primarily to the company’s desire to finance a $299,820 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.

VAUGHN CORPORATION
BALANCE SHEET
MARCH 31

Assets

2018

2017

Cash $18,140 $12,490
Notes receivable 147,030 131,070
Accounts receivable (net) 132,730 124,830
Inventories (at cost) 104,550 49,700
Plant & equipment (net of depreciation) 1,462,750 1,417,080
    Total assets $1,865,200 $1,735,170
Liabilities and Owners’ Equity
Accounts payable $79,140 $91,380
Notes payable 75,500 61,560
Accrued liabilities 22,780 11,570
Common stock (130,000 shares, $10 par) 1,301,670 1,288,340
Retained earningsa 386,110 282,320
    Total liabilities and stockholders’ equity $1,865,200 $1,735,170
aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018.

VAUGHN CORPORATION
INCOME STATEMENT
FOR THE FISCAL YEARS ENDED MARCH 31

2018

2017

Sales revenue $3,017,370 $2,675,520
Cost of goods solda 1,534,450 1,434,800
Gross margin 1,482,920 1,240,720
Operating expenses 859,730 778,290
Income before income taxes 623,190 462,430
Income taxes (40%) 249,276 184,972
Net income $373,914 $277,458
aDepreciation charges on the plant and equipment of $100,410 and $102,940 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold.


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

(1) Current ratio for fiscal years 2017 and 2018.
(2) Acid-test (quick) ratio for fiscal years 2017 and 2018.
(3) Inventory turnover for fiscal year 2018.
(4) Return on assets for fiscal years 2017 and 2018. (Assume total assets were $1,676,750 at 3/31/16.)
(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018.

2017

2018

(1) Current ratio :1 :1
(2) Acid-test (quick) ratio :1 :1
(3) Inventory turnover times
(4) Return on assets %

  

%
(5)

Percent Changes

Percent Increase

Sales revenue %
Cost of goods sold %
Gross margin %
Net income after taxes

  

%

Solutions

Expert Solution

2018 2017
Current Ratio =Current Assets / Current liabilties
Current Ratio =$402,540 / $177,420 2.27
Current Ratio =$318,090 / $164,510 1.93
Acid-test Ratio =[(Current Assets - Inventories - Prepaid expenses)/Current laibilities]
Acid-test Ratio =($402540 - $104,550) / $177,420 1.68
Acid-test Ratio =($318,090 - $49,700) / $164,510 1.63
Inventory Turnover ratio =Cost of goods sold / Closing Inventory
Inventory Turnover ratio =$1,431,510 / $104,550 13.69
Inventory Turnover ratio =$1,334,390 / $49,700 26.85
Return on Assets =Net Income / Average Total Assets
Return on Assets =$373,914 / ($1,865,200+1,735,170)/2 20.77%
Return on Assets =$373,914 / ($1,735,170+1,676,750)/2 21.92%
Percent Changes
Sales Revenue 12.78%
Cost of goods sold 7.28%
Gross Margin 19.52%
Net Income after taxes 34.76%

Related Solutions

Vaughn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,...
Vaughn 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 Vaughn 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 $35,140 notes, which are due on June 30, 2021, and September 30, 2021....
Martinez Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,...
Martinez 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 Martinez 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 $35,170 notes, which are due on June 30, 2021, and September 30, 2021....
Wildhorse Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,...
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....
Shamrock Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,...
Shamrock 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 Shamrock 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 $35,170 notes, which are due on June 30, 2021, and September 30, 2021....
Windsor Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown,...
Windsor 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 Windsor 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 $34,970 notes, which are due on June 30, 2021, and September 30, 2021....
Problem 24-3 Bradburn Corporation was formed 5 years ago through a public subscription of common stock....
Problem 24-3 Bradburn 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 Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2015, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,530 notes, which are due on June 30, 2015, and September...
Problem 24-3 Metlock Corporation was formed 5 years ago through a public subscription of common stock....
Problem 24-3 Metlock 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 Metlock and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,960 notes, which are due on June 30, 2018, and September...
Cash Management at Richmond Corporation Richmond Corporation was founded 20 years ago by its president, Daniel...
Cash Management at Richmond Corporation Richmond Corporation was founded 20 years ago by its president, Daniel Richmond. The company originally began as a mail order company but has grown rapidly in recent years, in large part due to its website. Because of the wide geographical dispersion of the company’s customers, it currently employs a lockbox system with collection centers in San Francisco, St. Louis, Atlanta, and Boston. Steve Dennis, the company’s treasurer, has been examining the current cash collection policies....
Since Garnet Corporation was formed five years ago, its stock has been held as follows: 525...
Since Garnet Corporation was formed five years ago, its stock has been held as follows: 525 shares by Frank and 175 shares by Grace. Their basis in the stock is $350,000 for Frank and $150,000 for Grace. As part of a stock redemption, Garnet redeems 125 of Frank's shares for $175,000 and 125 of Grace's shares for $175,000. Round any division to six decimal places. Round your final answer to the nearest dollar. a. What are the tax consequences of...
Myers Company Ltd. was formed 10 years ago by the issuance of 24,000 common shares to...
Myers Company Ltd. was formed 10 years ago by the issuance of 24,000 common shares to three shareholders. Four years later, the company went public and issued an additional 30,000 common shares. The management of Myers is considering a takeover in which Myers would purchase all of the assets and assume all of the liabilities of Norris Inc. Two alternative proposals are being considered: PROPOSAL 1 Myers would offer to pay $426,400 cash for the Norris net assets. In addition,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT