Financial information for Messersmith Company is presented below.

MESSERSMITH COMPANY Balance Sheets December 31
Assets	2015	2014
Cash	$? 70,000	$? 65,000
Short-term investments	52,000	40,000
Accounts receivable (net)	98,000	80,000
Inventory	125,000	135,000
Prepaid expenses	29,000	23,000
Land	130,000	130,000
Building and equipment (net)	180,000	175,000
	$684,000	$648,000
Liabilities and Stockholders' Equity
Notes payable	$100,000	$100,000
Accounts payable	48,000	42,000
Accrued liabilities	50,000	40,000
Bonds payable, due 2016	150,000	150,000
Common stock, $10 par	200,000	200,000
Retained earnings	136,000	116,000
	$684,000	$648,000

MESSERSMITH COMPANY Income Statement For the Years Ended December 31
	2015	2014
Net sales	$850,000	$790,000
Cost of goods sold	620,000	575,000
Gross profit	230,000	215,000
Operating expenses	187,000	173,000
Net income	$ 43,000	$ 42,000

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 at par on July 1, 2016.	Return on common stockholders' equity
(2) All of the notes payable were paid in 2016. The only change in liabilities was that the notes payable were paid.	Debt to assets ratio
(3) Market price of common stock was $9 on December 31, 2015, and $12.80 on December 31, 2016.	Price-earnings ratio