Problem 17-4A Calculation of financial statement ratios LO P3Selectedyear-end financial statements of Cabot Corporation...Problem...

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Problem 17-4A Calculation of financial statement ratios LO P3
Selectedyear-end financial statements of Cabot Corporation follow. (Allsales were on credit; selected balance sheet amounts at December31, 2016, were inventory, $52,900; total assets, $199,400; commonstock, $89,000; and retained earnings, $45,471.)
CABOT CORPORATION
Income Statement
For Year Ended December 31, 2017
Sales $454,600
Cost of goods sold 297,550
Gross profit 157,050
Operating expenses 99,500
Interest expense 4,500
Income before taxes 53,050
Income taxes 21,371
Net income $31,679
CABOT CORPORATION
Balance Sheet
December 31, 2017
Assets Liabilities and Equity
Cash $20,000 Accounts payable $17,500
Short-term investments 9,000 Accrued wages payable 4,800
Accounts receivable, net 31,800 Income taxes payable 4,000
Notes receivable (trade)* 6,000
Merchandise inventory 32,150 Long-term note payable, secured by mortgage on plant assets 63,400
Prepaid expenses 2,600 Common stock 89,000
Plant assets, net 154,300 Retained earnings 77,150
Total assets $255,850 Total liabilities and equity $255,850

* 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 ininventory, (6) debt-to-equity ratio, (7) times interest earned, (8)profit margin ratio, (9) total asset turnover, (10) return on totalassets, and (11) return on common stockholders' equity.(Do not round intermediate calculations.)

CABOT CORPORATION
Income Statement
For Year Ended December 31, 2017
Sales	$454,600
Cost of goods sold	297,550
Gross profit	157,050
Operating expenses	99,500
Interest expense	4,500
Income before taxes	53,050
Income taxes	21,371
Net income	$31,679

CABOT CORPORATION
Balance Sheet
December 31, 2017
Assets	Liabilities and Equity
Cash	$20,000	Accounts payable	$17,500
Short-term investments	9,000	Accrued wages payable	4,800
Accounts receivable, net	31,800	Income taxes payable	4,000
Notes receivable (trade)*	6,000
Merchandise inventory	32,150	Long-term note payable, secured by mortgage on plant assets	63,400
Prepaid expenses	2,600	Common stock	89,000
Plant assets, net	154,300	Retained earnings	77,150
Total assets	$255,850	Total liabilities and equity	$255,850

Answer & Explanation Solved by verified expert

4.5 Ratings (758 Votes)

1	Current ratio
	Current assets
	Cash	20000
	Short term investment	9000
	Account receivable	31800
	Note receivable	6000
	Inventory	32150
	Total current assets	98950


	Current liabilities
	Account payable	17500
	Accrued wages payable	4800
	Income tax payable	4000
	Total current liabilities	26300

	Current ratio=(current assets/current liabilities)	98950/26300	3.76


2	Acid test ratio

	Total current assets	$ 98,950.00
	Inventory	$ 32,150.00
	Prepaid expenses	$ 2,600.00
	Current liabilities	$ 26,300.00

	Acid test ratio=((current assets-inventory-prepaid expenses)/current liabilities)	((98950-32150-2600)/26300)	2.44


3	Days' sales uncollected
	Notes receivable	$ 6,000.00
	Account receivable	$ 31,800.00
	Net credit sale	$ 454,600.00

	Days' sales uncollected=((accounts receivable +notes receivable)/net credit sale)*365	((6000+31800)/454600)*365	30.35


4	Inventory turn over

	Cost of goods sold	$ 297,550.00
	Average inventory=(opening inventory +closing inventory)/2	$ 42,525.00 ((52900+32150)/2)
		$ 42,525.00 ((52900+32150)/2)


	Inventory turnover=cost of goods sold/ average inventory	297550/42525	7.00

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In: AccountingProblem 17-4A Calculation of financial statement ratios LO P3Selectedyear-end financial statements of Cabot Corporation...Problem 17-4A Calculation of financial statement ratios LO P3Selectedyear-end financial statements of Cabot Corporation follow. (Allsales were on credit; selected balance sheet amounts at December31, 2016, were inventory, $52,900; total assets, $199,400; commonstock, $89,000; and retained earnings, $45,471.)CABOT CORPORATIONIncome StatementFor Year Ended December 31, 2017Sales$454,600Cost of goods sold297,550Gross profit157,050Operating expenses99,500Interest expense4,500Income before taxes53,050Income taxes21,371Net income$31,679CABOT CORPORATIONBalance SheetDecember 31, 2017AssetsLiabilities and EquityCash$20,000Accounts payable$17,500Short-term investments9,000Accrued wages payable4,800Accounts receivable, net31,800Income taxes payable4,000Notes receivable (trade)*6,000Merchandise inventory32,150Long-term note payable, secured by mortgage on plant assets63,400Prepaid expenses2,600Common stock89,000Plant assets, net154,300Retained earnings77,150Total assets$255,850Total liabilities and equity$255,850* 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 ininventory, (6) debt-to-equity ratio, (7) times interest earned, (8)profit margin ratio, (9) total asset turnover, (10) return on totalassets, and (11) return on common stockholders' equity.(Do not round intermediate calculations.)