Crowley Building Supply sells various building materials to retail outlets. The
ID: 2535450 • Letter: C
Question
Crowley Building Supply sells various building materials to retail outlets. The company has just approached Sycamore State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:
During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.
Assume that the following ratios are typical of companies in the building supply industry:
Sycamore State Bank is uncertain whether the loan should be made. To assist it in making a decision, you have been asked to compute the following amounts and ratios for both this year and last year:
Current ratio. (Round your answers to 2 decimal places.)
Acid-test ratio. (Round your answers to 2 decimal places.)
Average collection period. (The accounts receivable at the beginning of last year totaled $258,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
Average sale period. (The inventory at the beginning of last year totaled $511,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
Present the balance sheet in common-size form. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)
Present the income statement in common-size form down through net income. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)
Crowley Building Supply sells various building materials to retail outlets. The company has just approached Sycamore State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:
Explanation / Answer
Solution 1:
(a) Working Capital= Total current assets – Total Current liabilities
This Year
Last Year
Working Capital
= $ 1,511,120- $ 809,000
= $ 1,073,060 -$ 448,000
=$ 702,120
=$ 625,060
(b)Current Ratio = Total current assets / Total Current liabilities
This Year
Last Year
Current Ratio
= $ 1,511,120 / $ 809,000
= $ 1,073,060 / $ 448,000
=1.87
=2.39
(c)Acid test ratio= (Total current assets – Inventory –Prepaid expenses) / Total Current liabilities
This Year
Last Year
Acid test ratio
=( $ 1,511,120- $ 950,120 - $ 21,000) / $ 809,000
=( $ 1,073,060 - $ 590,060 - $ 28,000 ) / $ 448,000
= $ 540,000 / $ 809,000
= $ 455,000 / $ 448,000
= 0.67
= 1.02
(d)Average collection period= 365 / Receivable Turnover ratio*
* Receivable Turnover ratio = Sales / Average Accounts Receivable
This Year
Last Year
Average collection period
= 365 / 13.1
= 365 / 15.9
=27.8
=22.9
* Receivable Turnover ratio
= $ 5,027,000 / [ ($ 291,000 + $
479,000) / 2]
= $ 4,369,000/ [ ($ 291,000 + $
$258,000) / 2]
= $ 5,027,000 / $ 385,000
=$ 4,369,000/ $ 274,500
=13.1
=15.9
(e)Average Sale period= 365 / Inventory Turnover ratio*
* Inventory Turnover ratio = Cost of goods sold / Average Inventory
This Year
Last Year
Average Sale period
= 365 / 5.0
= 365 / 4.7
=73
=77.6
* Inventory Turnover ratio
= $ 3,874,400/ [ ($590,060+ $
950,120) / 2]
= $ 3,438,400/ [ ($950,120+ $
$511,000) / 2]
= $ 3,874,400/ $ 770,090
= $ 3,438,400 / $ 730,560
=5.0
=4.7
(f)Debt equity ratio= Total liabilities /Total stockholders' equity
This Year
Last Year
Debt equity ratio
= $ 1,427,000 / $ 1,728,740
= $ 1,066,000 / $ 1,556,640
=0.82
=0.68
(g)Times interest earned = Income before interest and taxes / Interest expense
This Year
Last Year
Times interest earned
= $ 499,000 / $ 49,440
= $ 396,000 / $ 49,440
=10.1
=8.0
As per answering guidelines, I am submitting answer to first question (all parts). For rest of the answers, post question separately.
This Year
Last Year
Working Capital
= $ 1,511,120- $ 809,000
= $ 1,073,060 -$ 448,000
=$ 702,120
=$ 625,060
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