Reference no: EM132318397
Question
Monty 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 Monty 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 $35,020 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,040 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date.
Brown explained that Monty's cash flow problems are due primarily to the company's desire to finance a $302,480 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.
MONTY CORPORATION
BALANCE SHEET
MARCH 31
Assets2018
2017
Cash$18,370$12,530
Notes receivable148,910132,190
Accounts receivable (net)131,240125,020
Inventories (at cost)105,17050,210
Plant & equipment (net of depreciation)1,447,1501,413,460
Total assets$1,850,840$1,733,410
Liabilities and Owners' EquityAccounts payable$78,640$91,420
Notes payable75,85061,660
Accrued liabilities9,0408,340
Common stock (130,000 shares, $10 par)1,310,7901,300,030
Retained earningsa376,520271,960
Total liabilities and stockholders' equity$1,850,840$1,733,410
aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018.
MONTY CORPORATION
INCOME STATEMENT
FOR THE FISCAL YEARS ENDED MARCH 31
2018 2017
Sales revenue $3,001,980 $2,700,330
Cost of goods solda 1,538,400 1,427,160
Gross margin1,463,5801,273,170
Operating expenses864,890787,400
Income before income taxes598,690485,770
Income taxes (40%)239,476194,308
Net income$359,214$291,462
aDepreciation charges on the plant and equipment of $100,330 and $101,800 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold.
(a) Compute the following items for Monty Corporation. (Round answer to 2 decimal places, e.g. 2.25 or 2.25%.)
(1)Current ratio for fiscal years 2017 and 2018.
(2)Acid-test (quick) ratio for fiscal years 2017 and 2018.
(3)Inventory turnover for fiscal year 2018.
(4)Return on assets for fiscal years 2017 and 2018. (Assume total assets were $1,694,120 at 3/31/16.)
(5)Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018.
2017
2018
(1)Current ratio :1 :1
(2)Acid-test (quick) ratio :1 :1
(3)Inventory turnover times
(4)Return on assets
%
%
(5) Percent Changes
Percent Increase
Sales revenue
%Cost of goods sold
%Gross margin
%Net income after taxes
%