The following financial information is for Frizell Company.

FRIZELL COMPANY Balance Sheets December 31 Assets 2014 2013 Cash $ 70,000 $ 65,000 Debt investments (short-term) 55,000 40,000 Accounts receivable 104,000 90,000 Inventory 230,000 165,000 Prepaid expenses 25,000 23,000 Land 130,000 130,000 Building and equipment (net) 260,000 185,000 Total assets $874,000 $698,000 Liabilities and Stockholders’ Equity Notes payable $170,000 $120,000 Accounts payable 65,000 52,000 Accrued liabilities 40,000 40,000 Bonds payable, due 2017 250,000 170,000 Common stock, $10 par 200,000 200,000 Retained earnings 149,000 116,000 Total liabilities and stockholders’ equity $874,000 $698,000 FRIZELL COMPANY Income Statements For the Years Ended December 31 2014 2013 Sales revenue $882,000 $790,000 Cost of goods sold 640,000 575,000 Gross profit 242,000 215,000 Operating expenses 190,000 167,000 Net income $ 52,000 $ 48,000 Additional information:

1 Inventory at the beginning of 2013 was $115,000.

2 Accounts receivable (net) at the beginning of 2013 were $86,000.

3 Total assets at the beginning of 2013 were $660,000.

4 No common stock transactions occurred during 2013 or 2014.

5 All sales were on account.

Instructions

(a) Indicate, by using ratios, the change in liquidity and profitability of Frizell Company from 2013 to 2014. (Note: Not all profitability ratios can be computed nor can cashbasis ratios 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, 2014, and (2) as of December 31, 2015, after giving effect to the situation. Net income for 2015 was $54,000. Total assets on December 31, 2015, were $900,000.
Situation Ratio 1 18,000 shares of common stock were Return on common stockholders’
sold at par on July 1, 2015. equity 2 All of the notes payable were paid in 2015. Debt to assets ratio 3 The market price of common stock was $9 Price-earnings ratio and $12 on December 31, 2014 and 2015, respectively.AppendixLO1