For Question 1 (please answer part 2 a,b)

Then solve Question 2 (See attached file)

30/11/2015 1. Assignment Print View Award: 5.00 points Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing shortterm obligations. The company's financial statements for the most recent two years follow: Modern Building Supply Comparative Balance Sheet Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 11% Total liabilities Stockholders' equity: Preferred stock, $25 par, 6% Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity This Year $ 54,000 0 464,000 946,000 19,000 Last Year $ 131,000 16,000 287,000 599,000 26,000 1,483,000 1,643,372 1,059,000 1,501,261 $3,126,372 $ 2,560,261 $ 809,000 607,000 $ 435,000 607,000 1,416,000 1,042,000 287,500 515,000 907,872 287,500 515,000 715,761 1,710,372 1,518,261 $3,126,372 $ 2,560,261 Modern Building Supply Comparative Income Statement and Reconciliation This Year Sales $5,010,000 Cost of goods sold 3,858,000 Gross margin 1,152,000 Selling and administrative expenses 639,000 Net operating income 513,000 Interest expense 66,770 Net income before taxes 446,230 Income taxes (30%) 133,869 Net income 312,361 http://ezto.mheducation.com/hm.tpx Last Year $ 4,365,000 3,447,000 918,000 547,000 371,000 66,770 304,230 91,269 212,961 1/7 30/11/2015 Assignment Print View Dividends paid: Preferred dividends Common dividends Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year 17,250 103,000 17,250 66,950 120,250 84,200 192,111 715,761 128,761 587,000 $ 907,872 $ 715,761 During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account. Assume that the following ratios are typical of companies in the building supply industry: Current ratio Acidtest ratio Average collection period Average sale period Debttoequity ratio Times interest earned Return on total assets Priceearnings ratio 2.5 1.2 18 days 50 days 0.75 6.0 10 % 9 Required: 1. Linden State Bank is uncertain whether the loan should be made. To assist it in making a decision, you have been asked to compute the following amounts and ratios for both this year and last year: a. Working capital. Working capital This year $ 674000 Last year $ 624000 b. Current ratio. (Round your answers to 2 decimal places.) Current ratio This year 1.83 Last year 2.43 c. Acidtest ratio. (Round your answers to 2 decimal places.) Acidtest ratio This year 0.64 Last year 0.99 d. Average collection period. (The accounts receivable at the beginning of last year totaled $255,000.) (Do not round intermediate calculations. Round your final answers to 1 decimal place. Use 365 days in a year.) Average collection period http://ezto.mheducation.com/hm.tpx This year 27.3 days Last year 22.7 days 2/7 30/11/2015 Assignment Print View e. Average sale period. (The inventory at the beginning of last year totaled $519,000.) (Do not round intermediate calculations. Round your final answers to 1 decimal place. Use 365 days in a year.) Average sale period This year 73.0 days Last year 59.2 days f. Debttoequity ratio. (Round your answers to 2 decimal places.) Debttoequity ratio This year 0.83 Last year 0.69 g. Times interest earned. (Round your answers to 1 decimal place.) Times interest earned This year 7.68 Last year 5.56 2. For both this year and last year: a. Present the balance sheet in commonsize form. (Round your answers to 1 decimal place. Leave no cells blank be certain to enter "0" wherever required. Due to rounding, figures may not fully reconcile down a column.) Modern Building Supply CommonSize Balance Sheets This Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' equity Liabilities: Current liabilities Bonds payable, 11% Total liabilities Stockholders' equity: Preferred stock, $25 par, 6% Common stock, $10 par Retained earnings Total stockholders' equity http://ezto.mheducation.com/hm.tpx Last Year % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % 3/7 30/11/2015 Assignment Print View Total liabilities and stockholders' equity % % b. Present the income statement in commonsize form down through net income.(Input all amounts as positive values. Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.) Modern Building Supply CommonSize Income Statements This Year 5010000 % % Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income Last Year % % % % % % % % % % % % % % % % rev: 04_27_2015_QC_CS14601 References Worksheet Learning Objective: 1301 Prepare and interpret financial statements in comparative and commonsize form. Learning Objective: 1304 Compute and interpret financial ratios that would be useful to a longterm creditor. Difficulty: Hard Learning Objective: 1303 Compute and interpret financial ratios that would be useful to a short term creditor. 2. Award: 5.00 points Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing shortterm obligations. The company's financial statements for the most recent two years follow: Modern Building Supply http://ezto.mheducation.com/hm.tpx 4/7 30/11/2015 Assignment Print View Comparative Balance Sheet This Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 9% Total liabilities Stockholders' equity: Preferred stock, $25 par, 7% Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and stockholder's equity $ Last Year 58,000 $ 137,000 0 14,000 473,000 281,000 946,000 586,000 20,000 25,000 1,497,000 1,043,000 1,625,354 1,507,012 $ 3,122,354 $2,550,012 $ 819,000 $ 446,000 611,000 611,000 1,430,000 1,057,000 252,500 501,000 938,854 252,500 501,000 739,512 1,692,354 1,493,012 $ 3,122,354 $2,550,012 Modern Building Supply Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,013,000 $ 4,359,000 Cost of goods sold 3,866,000 3,440,000 Gross margin 1,147,000 919,000 Selling and administrative expenses 646,000 535,000 Net operating income 501,000 384,000 Interest expense 54,990 54,990 Net income before taxes 446,010 329,010 Income taxes (30%) 133,803 98,703 Net income 312,207 230,307 Dividends paid: Preferred dividends 17,675 17,675 Common dividends 95,190 60,120 Total dividends paid 112,865 77,795 Net income retained 199,342 152,512 Retained earnings, beginning of year 739,512 587,000 Retained earnings, end of year $ 938,854 $ 739,512 During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account. Assume that the following ratios are typical of companies in the building supply industry: http://ezto.mheducation.com/hm.tpx 5/7 30/11/2015 Assignment Print View Current ratio Acidtest ratio Average collection period Average sale period Debttoequity ratio Times interest earned ratio Return on total assets Priceearnings ratio 2.5 1.2 18 days 50 days 0.75 6.0 10 % 9 Assume that you have just inherited several hundred shares of Modern Building Supply stock. Not being acquainted with the company, you decide to do some analytical work before making a decision about whether to retain or sell the stock you have inherited. Required: 1. You decide first to assess the wellbeing of the common stockholders. For both this year and last year, compute the following: a. The earnings per share.(Round your answers to 2 decimal places.) This year Earnings per share $ Last year $ b. The dividend yield ratio for common stock. The company's common stock is currently selling for $41.16 per share last year it sold for $35.19 per share. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) This year Dividend yield ratio Last year % % c. The dividend payout ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) Dividend payout ratio This year Last year % % d. The priceearnings ratio. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.) Priceearnings ratio This year times Last year times e. The book value per share of common stock. (Round your answers to 2 decimal places.) Book value per share This year $ Last year $ 2. You decide next to assess the company's rate of return. Compute the following for both this year and last year: a. The return on total assets. (Total assets at the beginning of last year were $2,230,000.) (Round your intermediate calculations to whole numbers and final answer to 1 decimal place.) Return on total assets This year Last year % % b. The return on common stockholders' equity. (Stockholders' equity at the beginning of last year was $1,259,000.)(Round your intermediate calculations to whole numbers and final answer to 1 decimal place.) Return on common stockholders' equity This year Last year % % c. Is the company's financial leverage positive or negative? http://ezto.mheducation.com/hm.tpx 6/7 30/11/2015 Assignment Print View Positive Negative References Worksheet Difficulty: Hard Learning Objective: 1302 Compute and interpret financial ratios that would be useful to a common stockholder. http://ezto.mheducation.com/hm.tpx 7/7