Suggested languages for you:

Question P24-3_a(1)

Expert-verified
Found in: Page 1451

Intermediate Accounting (Kieso)

Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201

(Ratio Computations and Additional Analysis) Bradburn 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 Bradburn 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 $35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of$6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal yearsBRADBURN CORPORATIONBALANCE SHEETMARCH 31Assets20182017Cash$ 18,200$12,500Notes receivable148,000 132,000Accounts receivable (net)131,800 125,500Inventories (at cost)105,000 50,000Plant & Equipment (net of depreciation) 1,449,000 1,420,500 Total assets$1,852,000$1,740,500 Liabilities and Stockholders’ Equity Accounts payable$ 79,000$91,000Notes payable 76,000 61,500Accrued liabilities 9,000 6,000Common stock (130,000 shares,$10 par) 1,300,000 1,300,000Retained earnings* 388,000 282,000 Total liabilities and stockholders’ equity$1,852,000$1,740,500 *Cash dividends were paid at the rate of $1 per share in the fiscal year 2017 and$2 per share in the fiscal year 2018. BRADBURN CORPORATIONINCOME STATEMENTFOR THE FISCAL YEARS ENDED MARCH 31 20182017Sales revenue$3,000,000$2,700,000Cost of goods sold*1,530,0001,425,000Gross margin1,470,0001,275,000Operating expenses860,000780,000Income before income taxes610,000495,000Income taxes (40%)244,000198,000Net income$366,000$ 297,000*Depreciation charges on the plant and equipment of $100,000 and$102,500 for fiscal years ended March 31, 2017, and 2018, respectively, are included in the cost of goods sold.Instructions (a). Compute the following items for Bradburn Corporation.Current ratio for fiscal years 2017 and 2018.

The current ratio of 2017 is 2.02:1, and 2018 is 2.46:1.

See the step by step solution

Meaning of Current Ratio

The current ratio evaluates a company's ability to make short-term payments. It is a widely used indicator for determining a company's short-term liquidity. The ratio is used by analysts to determine whether to invest in or lend money to a firm.

Computation of current ratios

Computation of current ratio of 2017

Computation of current ratio of 2018