Sheridan Corporation was formed 5 years ago through a public subscription of com
ID: 2587767 • Letter: S
Question
Sheridan 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 Sheridan 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-month extension on two $34,920 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,970 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Sheridan’s cash flow problems are due primarily to the company’s desire to finance a $300,720 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.
SHERIDAN CORPORATION
BALANCE SHEET
MARCH 31
2018
2017
SHERIDAN CORPORATION
INCOME STATEMENT
FOR THE FISCAL YEARS ENDED MARCH 31
2018
2017
(a) Compute the following items for Sheridan Corporation. (Round answer to 2 decimal places, e.g. 2.25 or 2.25%.)
2017
2018
SHERIDAN CORPORATION
BALANCE SHEET
MARCH 31
2018
2017
Cash $18,120 $12,410 Notes receivable 148,700 130,840 Accounts receivable (net) 132,830 125,880 Inventories (at cost) 104,150 50,010 Plant & equipment (net of depreciation) 1,440,600 1,429,490 Total assets $1,844,400 $1,748,630 Liabilities and Owners’ Equity Accounts payable $78,220 $90,330 Notes payable 75,500 61,590 Accrued liabilities 2,760 23,230 Common stock (130,000 shares, $10 par) 1,298,610 1,290,550 Retained earningsa 389,310 282,930 Total liabilities and stockholders’ equity $1,844,400 $1,748,630 aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018.Explanation / Answer
Answer 1
Current ratio = Current Assets / Current liabilities
Particulars
2017
2018
Current Assets
= Cash + Notes receivable+ Accounts receivable (net)+ Inventories (at cost)
= $ 12,410 + 130,840 + 125,880 + 50,010
= $ 319,140
=Cash + Notes receivable+ Accounts receivable (net)+ Inventories (at cost)
= $ 18,120 + 148,700 + 132,830 + 104,150
= $ 403,800
Current liabilities
= Accounts payable + Notes payable + Accrued liabilities
= $ 90,330 + 61,590 + 23,230
=$ 175,150
= Accounts payable + Notes payable + Accrued liabilities
= $ 78,220 + 75,500 + 2,760
=$ 156,480
Current Ratio
Answer
= $ 319,140 / $ 175,150
= 1.82 : 1
= $ 403,800 / $ 156,480
= 2.58 : 1
Answer 2
Acid-test (quick) ratio = Quick assets* / Current liabilities
*Quick assets = Current Assets- Inventories (at cost) – Prepaid expenses
Particulars
2017
2018
Quick Assets
= $ 319,140 - 50,010 -0
= $ 269,130
= $ 403,800 - 104,150 - 0
= $ 299,650
Current liabilities
= Accounts payable + Notes payable + Accrued liabilities
= $ 90,330 + 61,590 + 23,230
=$ 175,150
= Accounts payable + Notes payable + Accrued liabilities
= $ 78,220 + 75,500 + 2,760
=$ 156,480
Acid-test (quick) ratio
Answer
= $ 269,130 / $ 175,150
= 1.54 : 1
= $ 299,650/ $ 156,480
= 1.91 : 1
Answer 3
2018
Inventory turnover = Cost of goods sold* / Average inventory**
= $ 1,412,100 / $ 77,080
= 18.32 times (Answer)
*Cost of goods sold is the direct costs attributable to the production of the goods sold in a company. Depreciation is included in cost of goods sold, considering depreciation as indirect cost, should be deducted from cost of goods sold.
Cost of goods sold = Cost of goods sold (Given) - Depreciation
= $ 1,514,810 - $ 102,710
= $ 1,412,100
** Average inventory= (Inventory in 2017 + Inventory in 2018) /2
= ($ 50,010 + $ 104,150) / 2
= $ 154,160 / 2
= $ 77,080
Answer 4
Return on assets = Net Income / Average Total Assets X 100
Particulars
2017
2018
Net Income
$ 299,190
$ 373,122
Average Total Assets
( Total Assets in 2016 + Total Assets in 2017) /2
= ( $ 1,682,280 + 1,748,630) / 2
= $ 1,715,455
( Total Assets in 2017 + Total Assets in 2018) /2
= ( $ 1,748,630 + 1,844,400) /2
= $ 1,796,515
Return on assets
Answer
= $ 299,190 / $ 1,715,455 X 100
= 17.45 %
= $ 373,122/ $ 1,796,515 X 100
= 20.77 %
Answer 5
Percentage change= Amount of change* / previous year amount X 100
* Amount of change = Current year amount - Previous year amount
Particulars
2017 (Previous year ) ($)
2018 (Current year ) ($)
Amount of change ($)
Percentage change (%)
(Answers)
Sales revenue
2,693,360
2,992,720
299,360
11.11 % (Increase)
Cost of goods sold**
1,318,850
1,412,100
93,250
7.07 %
(Increase)
Gross margin
1,274,490
1,477,910
203,420
15.96 %
(Increase)
Net income after taxes***
299,190
373,122
73,932
24.71 %
(Increase)
**Cost of goods sold is the direct costs attributable to the production of the goods sold in a company. Depreciation is included in cost of goods sold, considering depreciation as indirect cost, should be deducted from cost of goods sold.
Cost of goods sold = Cost of goods sold (Given) - Depreciation
For year 2017 = $ 1,418,870 - $100,020
= $ 1,318,850
For year 2018 = $ 1,514,810 - $ 102,710
= $ 1,412,100
***Inclusion of depreciation in cost of goods sold will not make any difference in net income after taxes. For example, take year 2018:
Particulars
Amount ($) 2018
Sales revenue
2,992,720
Less: Cost of goods sold (excluding depreciation)
1,412,100
Gross margin
1,580,620
Less: Operating expense (including depreciation)
( $ 856,040 + $ 102,710)
958,750
Income before income taxes
621,870
Less: Income taxes (40%)
248,748
Net income
373,122
Particulars
2017
2018
Current Assets
= Cash + Notes receivable+ Accounts receivable (net)+ Inventories (at cost)
= $ 12,410 + 130,840 + 125,880 + 50,010
= $ 319,140
=Cash + Notes receivable+ Accounts receivable (net)+ Inventories (at cost)
= $ 18,120 + 148,700 + 132,830 + 104,150
= $ 403,800
Current liabilities
= Accounts payable + Notes payable + Accrued liabilities
= $ 90,330 + 61,590 + 23,230
=$ 175,150
= Accounts payable + Notes payable + Accrued liabilities
= $ 78,220 + 75,500 + 2,760
=$ 156,480
Current Ratio
Answer
= $ 319,140 / $ 175,150
= 1.82 : 1
= $ 403,800 / $ 156,480
= 2.58 : 1
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