In: Accounting
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 |
||||
---|---|---|---|---|
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 |
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---|---|---|---|---|
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 |
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---|---|---|---|---|---|---|---|---|
(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 |
|
% |
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% | |