Selected year-end financial statements of Cabot Corporation follow.(All sales we

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, $46,900,total assets, $189,400, common stock, $86,000; and retained earnings, $46,897) Incone Statenent Cost of goods sold Gross profit Operating expenses Interest expense Incoee before taxes Incoee taxes Net incone 453,6e0 297,850 155, 758 99,480 4,600 20, 847 s 30,963 CABOT CORPORATION Balance Sheet Liabilities and Equity 12,000 Accounts payable 16, 500 3, 5e9 66, 400 86, 000 s 254, 6e9 Short-ters investments Accounts receivable, net Notes receivable (trade)* Merchandise inventory 8, 400 Accrued wages payable 31,000 Incone taxes payable 42, 150 Long-term note payable, secured by mortgage on plant assets Prepaid expenses Plant assets, net Total assets 2,758 Conmon stock 153.300 Retained earnings s 254,680 Total liabilities and equit)y These are short-term notes receivable arising from customer (trade) sales Required: Comoute the followina: th current ratio. (2) acid-test ratio. (3i devs sales uncollected, (4) inventorv turnover (5i davs' sales in inventorv

Explanation / Answer

Solution 1:

Current rato = Current assets / Current liabilities

Current assets = $12,000 + $8,400 + $31,000 + $5,000 + $42,150 + $2,750 = $101,300

Current liabilities = $16,500 + $4,400 + $3,500 = $24,400

Current ratio = $101,300 / $24,400 = 4.15:1

Solution 2:

Acid test ratio = Quick Assets / Current laibilities

Quick assets = Current assets - Inventory - Prepaid Expenses

= $101,300 - $42,150 - $2,750 = $56,400

Acid test ratio = $56,400 / $24,400 = 2.31:1

Solution 3:

Days sales uncollected = Nos of days in a year / Accounts receivables turnover ratio

Accounts receivables turnover ratio = Sales / accounts receivables and short term note receivables

= $453,600 / ($31,000 + $5,000) = 12.6 times

Days sales uncollected = 365 / 12.6 = 28.97 days

Solution 4:

Inventory turnover = Cost of goods sold / Average inventory

Average inventory = ($46,900 + $42,150) / 2 = $44,525

Inventory turnover = $297,850 / $44,525 = 6.69 times

Solution 11:

Return on common shareholder's equity = Net Income / Average shareholder's Equity

Average shareholder's Equity = ($86,000 + $46,897) + ($86,000 + $77,800) / 2 = $148,348

Return on common shareholder equity = $30,903 / $148,348 = 20.83%

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