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ACC Problem: P24-3, Sandburg Corporation

Question # 00053165
Subject: Foreign Languages / General Foreign Languages
Due on: 03/18/2015
Posted On: 03/09/2015 12:20 AM
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Problem: P24-3, Ratio Computations and Additional Analysis, File 24p-3

Sandburg Corporation was formed 5 years ago through a public subscription of common stock. Robert Frost, who owns 15% of the common stock, was one of the organizers of Sandburg and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, Robert Frost approached the Spokane National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2007 and September 30, 2007. Another note of $6,000 is due on March 31, 2008, but he expects no difficulty in paying this note on its due date. Frost explained that Sandburg'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 Spokane National Bank requested financial reports for the last 2 fiscal years. These reports are reproduced below:

SANDBURG CORPORATION

Statement of Financial Position

March 31

Assets 2007 2006

Cash $18,200 $12,500

Notes receivable 148,000 132,000

Accounts receivable (net) 131,800 125,500

Inventories (at cost) 95,000 50,000

Plant & equipment (net of depreciation) 1,449,000 1,420,500

Total assets $1,842,000 $1,740,500

Liabilities and Owners' Equity

Accounts payable $69,000 $91,000

Notes payable 76,000 61,500

Accrued liabilities 9,000 6,000

Common stock (130,000 shares, $10 par) 1,300,000 1,300,000

Retained earningsa 388,000 282,000

Total liabilities and owners' equity $1,842,000 $1,740,500

a Cash dividends were paid at the rate of $1.00 per share in fiscal year 2006 and $2.00 per share in fiscal year 2007

SANDBURG CORPORATION

Income Statement

For The Fiscal Year Ended March 31

2007 2006

Sales $3,000,000 $2,700,000

Cost of goods sold 1,530,000 1,425,000

Gross margin 1,470,000 1,275,000

Operating expenses 860,000 780,000

Income before income taxes 610,000 495,000

Income taxes 244,000 198,000

Net income after income taxes $366,000 $297,000

Depreciation charges on the plant and equipment of $100,000 and $102,500 for the fiscal years ended March 31, 2006 and 2007, respectively, are included in cost of goods sold.

Instructions:

Fill in the provided matrix and utilize it as the matrix for "VLOOKUP" formulas within the cells below.

Column 4 Column 5

2007 2006

Average inventory - 2007

Average total assets

Total Assets = Mar 31, 2002

Total Assets = Mar 31, 2006

Total Assets = Mar 31, 2007

Cost of goods sold

Current assets

Current liabilities

Dividends

Depreciation

Gross margin

Income before taxes

Income taxes (40%)

Inventories = EOY 2006

Inventories = EOY 2007

Net income after taxes

Operating expenses

Sales

(a) Compute the following items for Sandburg Corporation:

(1) Current ratio for fiscal years 2006 and 2007.

(2) Acid-test (quick) ratio for fiscal years 2006 and 2007.

(3) Inventory turnover for fiscal year 2007.

(4) Return on assets for fiscal years 2006 and 2007. (Assume total assets were

(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2006 to 2007. Omit "000" from the values.

(b) Identify and explain what other financial reports and / or financial analyses might be helpful to the commercial loan officer of Spokane National Bank in evaluating Robert Frost's request for a time extension on Sandburg's notes.

(c) Assume that the percentage changes experienced in fiscal year 2007 as compared with fiscal year 2006 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Sandburg's desire to finance the plant expansion from internally generated funds realistic? Discuss. (Omit the '000s.)

(d) Should Spokane National Bank grant the extension on Sandburg's notes considering Robert Frost's statement about financing the plant expansion through internally generated funds? Discuss.

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ACC Problem - P24-3, Sandburg Corporation (solution)

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ACC_Problem_-_P24-3,_Sandburg_Corporation_(solution).xlsx (14.18 KB)
Preview: compared xxxx fiscal xxxx 2006 for xxxxx and cost xx goods xxxx xxxx be xxxxxxxx in each xx the next x years xxxxxxxxxxxx xxxxxx to xxxxxxx the plant xxxxxxxxx from internally xxxxxxxxx funds xxxxxxxxxx xxxxxxx C)Less xxxxxxxxx expenseIncome before xxxxxxxxx Tax @ xxxxxx depreciationLess xxxxxxxxxxxx xxxxxxxxxxxxxx Available xxx Plant Expansionplant xxxxxxxxxxxxxxx fundsnotes considering xxxxxx Frost's xxxxxxxxx xxxxx financing xxx plant expansion xxxxxxx internally generated xxxxxx Discuss xxx xxxxxx Spokane xxxxxxxx Bank grant xxx extension on xxxxxxxxxx because xxxx xxx above xxxxxxxxxxxx it has
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