Problem 24B-3 Stellar Corporation was formed 5 years ago through a public subscr

Question

Problem 24B-3 Stellar 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 Stellar 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 mont extension on two $34,890 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,030 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Stellar's cash flow problems are due primarily to the company's desire to finance a $300,330 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. SIELLAR CORPORATION BALANCE SHEE MARCH 31 2018 2017 Assets Cash Notes receivable Accounts recelvable (net) Inventories (at cost) Plant & equipment (net of depreciation) $18,150 148,430 132,710 106,010 1,462,750 $1,868,050 $12,620 131,870 124,830 49,740 1,424,480 $1,743,540 Total assets Accounts payable Notes payable Accrued llabilities Common stock (130,000 shares, $10 par) Retained earnings $78,420 76,070 10,310 1,311,520 391,730 $1,868,050 $90,570 61,420 18,690 1,290,790 282,070 $1,743,540 Total liabilities and stockholders equity

Explanation / Answer

1) Current Ratio = Current Assets / Current Liabilities

2017 = (12620+131870+124830+49740) / (90570+61420+18690)

= $319060 / $170680

= 1.87

2018 = $405300 / $164800 = 2.46

2) Quick Ratio = (Current Assets - Inventory) / Current Liabilities

2017 = ($319060 - $49740)/ $170680 = 1.58

2018 = ($405300 - $106010) / $164800 = 1.82

3) Inventory Turnover = Cost of Goods Sold / Average Inventory

2017 = $1412530 / (($49740+$106010)/2)

= $1412530 / $77875

= 18.14

2018 = $1531830 / $77875 = 19.67

4) Return on Assets = Net Income / Average Total Assets

2017 = $298248 / (($1743540+$1868050)/2)

= $298248 / $1805795

= 16.52%

2018 = $349500 / $1805795 = 19.35%

5)

Particulars Percent Increase Sales Revenue 10.73% Cost of Goods Slod 8.45% Gross Margin 13.26% Net Income after Taxes 17.18%

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