Financial information for Messersmith Company is presented below.

Additional information:
1. Inventory at the beginning of 2014 was $118,000.
2. Total assets at the beginning of 2014 were $630,000.
3. No common stock transactions occurred during 2014 or 2015.
4. All sales were on account. Accounts receivable, net at the beginning of 2014, were $88,000.
5. Notes payable are classified as current liabilities.

Instructions
(a) Indicate, by using ratios, the change in liquidity and profitability of Messersmith Company from 2014 to 2015. (Note: Not all profitability ratios can be computed.)
(b) Given below are three independent situations and a ratio that may be affected. For each situation, compute the affected ratio (1) as of December 31, 2015, and (2) as of December 31, 2016, after giving effect to the situation. Net income for 2016 was $50,000. Total assets on December 31, 2016, were $700,000.
Situation Ratio___________
(1) 18,000 shares of common stock were sold Return on common stockholders’
at par on July 1, 2016. equity
(2) All of the notes payable were paid in 2016. Debt to assets ratio
The only change in liabilities was that the
notes payable were paid.
(3) Market price of common stock was $9 Price-earnings ratio
on December 31, 2015, and $12.80 on
December 31,2016.

MESSERSMITH COMPANY Balance Sheets December 31 2014 Assets Cash Short-term investments Accounts receivable (net) Inventory Prepaid expenses Land Building and equipment (net) 2015 70,000 52,000 98,000 125,000 29,000 130,000 180,000 $684,000 65,000 40,000 80,000 135,000 23,000 130,000 175,000 $648,000 Liabilities and Stockholders' Equity Notes payable Accounts payable Accrued liabilities Bonds payable, due 2016 Common stock, $10 par Retained earnings $100,000 48,000 50,000 150,000 200,000 136,000 $684,000 100,000 42,000 40,000 150,000 200,000 116,000 $648,000 MESSERSMITH COMPANY Income Statement For the Years Ended December 31 Net sales Cost of goods sold Gross profit Operating expenses Net income 2015 $850,000 620,000 230,000 187,000 43,000 2014 $790,000 575,000 215,000 173,000 42,000