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, $51,900; total assets, $179,400; common stock, $85,000; and retained earnings, $48,534.)

CABOT CORPORATION Income Statement For Year Ended December 31, 2017
Sales	$	451,600
Cost of goods sold		297,250
Gross profit		154,350
Operating expenses		98,600
Interest expense		4,900
Income before taxes		50,850
Income taxes		20,484
Net income	$	30,366

CABOT CORPORATION Balance Sheet December 31, 2017
Assets				Liabilities and Equity
Cash	$	22,000		Accounts payable	$	17,500
Short-term investments		8,400		Accrued wages payable		4,600
Accounts receivable, net		33,200		Income taxes payable		3,200
Notes receivable (trade)*		4,500
Merchandise inventory		36,150		Long-term note payable, secured by mortgage on plant assets		67,400
Prepaid expenses		3,050		Common stock		85,000
Plant assets, net		149,300		Retained earnings		78,900
Total assets	$	256,600		Total liabilities and equity	$	256,600

* 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.)

Compute the current ratio and acid-test ratio.

	(1) Current Ratio Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current assets = Current ratio 2017: $4 / $4 = 1.0 to 1 (2) Acid-Test Ratio Choose Numerator: / Choose Denominator: = Acid-Test Ratio / = Acid-Test Ratio 2017: $3 / $69 = 0.0 to 1

Compute the current ratio and acid-test ratio.

Compute the days' sales uncollected.

	(3) Days' Sales Uncollected Choose Numerator: / Choose Denominator: x Days = Days Sales Uncollected Accounts Receivable, net (including current notes receivable from customers) / Average accounts receivable, net x 365 = Days sales uncollected 2017: $33,200 / $4,500 x 365 = 2,692.9 days

Compute the inventory turnover.

	(4) Inventory Turnover Choose Numerator: / Choose Denominator: = Inventory Turnover / = Inventory turnover 2017: / = 0 times

Compute the days' sales in inventory.

	(5) Days’ Sales in Inventory Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory / x = Days’ sales in inventory 2017: / x = 0 days

Compute the debt-to-equity ratio.

	(6) Debt-to-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-to-Equity Ratio / = Debt-to-equity ratio 2017: / = 0 to 1

Answer 1

1 ) Current ratio :- Formula

= Current Asset / Current Liabilities

= Current Assets =  Cash + Short Term Investments + Accounts Receivable + Merchandise Inventory + Prepaid Expenses + Notes Receivable ( 22,000 + 8,400 + 33,200 + 36,150 + 3,050 + 4,500 ) = 107300

= Current liabilities = Accounts Payable + Accrued Wages + Income Taxes Payable ( 17,500 + 4,600 + 3,200 ) = 25300

= 107300 / 25300

= 4.24 = Current Ratio

2) Acid test ratio :- Quick Asset / current liabilities

= Quick Asset = Cash + Short Term Investments + Accounts Receivable + Notes Receivable ( 22,000 + 8,400 + 33,200+ 4,500) = 68100

= Current Liabilities = Look above in part 1

= 68100 / 25300

= 2.6

3) Days' sales uncollected :-

= Accounts Receivable / Net Sales x 365

= 33,200 / 451,600 x 365

= 27 Days

4) inventory turnover:-

= Cost of Goods Sold / Average Inventory

= Average inventory = Beginning balance + Ending balance / 2

=  51,900 + 36,150 / 2

= Average inventory= 44025

= 297,250 / 44025

= 6.75

5) Days' sales in inventory :-

= Merchandise Inventory / COGS x 365

= 36,150 / 297,250 x 365

= 44.389

6) Debt-to-equity ratio:-

= Total liabilities / Total equity

= Liabilities = Accounts payable + Accrued wages payable + Income taxes payable + Long term note payable = ( 17,500 + 4,600 + 3,200 + 67,400 ) = 92700

Equity = Common stock + Retained earnings = (85,000 + 78,900 ) = 163900

= 92700 /  163900

= 0.56