Question

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. Another note of $5,990 is due on March 31, 2022, 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 $301,430 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		2021		2020
Cash		$18,340		$12,500
Notes receivable		147,090		132,010
Accounts receivable (net)		132,350		125,250
Inventories (at cost)		105,410		49,960
Plant & equipment (net of depreciation)		1,434,630		1,411,230
Total assets		$1,837,820		$1,730,950
Liabilities and Owners’ Equity
Accounts payable		$79,720		$91,760
Notes payable		76,270		61,120
Accrued liabilities		5,340		11,960
Common stock (130,000 shares, $10 par)		1,305,620		1,311,870
Retained earningsa		370,870		254,240
Total liabilities and stockholders’ equity		$1,837,820		$1,730,950
aCash dividends were paid at the rate of $1 per share in fiscal year 2020 and $2 per share in fiscal year 2021.

Vaughn Corporation Income Statement For the Fiscal Years Ended March 31
		2021		2020
Sales revenue		$3,028,020		$2,712,300
Cost of goods solda		1,534,160		1,416,420
Gross margin		1,493,860		1,295,880
Operating expenses		861,150		775,180
Income before income taxes		632,710		520,700
Income taxes (40%)		253,084		208,280
Net income		$379,626		$312,420
aDepreciation charges on the plant and equipment of $99,460 and $102,440 for fiscal years ended March 31, 2020 and 2021, respectively, are included in cost of goods sold.

(a)

Compute the following items for Vaughn 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 $1,672,060 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

Current ratio = Current assets/ Current Liabilities

For 2020 =($12,500+$132,010+$125,250+$49,960)/($91,760+$61,120+$11,960)

=$319,720/$164,840

=1.93

For 2021 = ($18,340+$147,090+$132,350+$105,410)/($79,720+$76,270+$5,340)

=$403,190/$161,330

=2.49

Acid test ratio = (Current assets- Inventory)/Current Liabilities

For 2020 =($319,720-$49,960)/$164,840

=$269,760/$164,840

=1.63

For 2021 =($403,190-$108,410)/$161,330

=$294,780/$161,330

=1.82

Inventory I= Cost of goods sold/ Average inventory =$1,534,160/($105,410+$49,960)/2

=$1,534,160/$77,685

=19.7 times

Return on Assets= Net income/ Average total assets

For 2020 =$312,420/($1,730,950+$1,672,060)/2

=$312,420/$1,701,505

=18.36%

For 2021 =$379,626/($1,837,820+$1,730,950)/2

=$379,626/$1,784,385

=21.27%

Percentage Increase= (2021 amount- 2020 amount)/2020 amount ×100

Sales revenue=($3,028,020-$2,712,300)/$2,712,300 =11.64%

Cost of goods sold= ($1,534,160-$1,416,420)/$1,416,420 =8.31%

Gross margin=($1,493,860-$1,295,880)/$1,295,880 =15.27%

Net income after tax=($379,626-$312,420)/$312,420 =21.51%

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