Question
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,
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, 2017, and (2) as of December 31, 2018, after giving effect to the situation. Net income for 2018 was $82,000. Total assets on December 31, 2018, were $1,148,000.(Round answers to 1 decimal place, e.g. 6.8 or 6.8% .)
| Situation | Ratio | |
| (1) | 29,520 shares of common stock were sold at par on July 1, 2018. | Return on common stockholders equity |
| (2) | All of the notes payable were paid in 2018. The only change in liabilities was that the notes payable were paid. | Debt to assets |
| (3) | Market price of common stock was $15 on December 31, 2017, and $20.99 on December 31, 2018. | Price-earnings ratio |
| 2017 | 2018 | |||
| Return on common stockholders equity | % | % | ||
| Debt to assets | % | % | ||
| Price-earnings ratio | times | times |
Financial information for Messersmith Company is presented below.
| MESSERSMITH COMPANY Balance Sheets December 31 | ||
| Assets | 2017 | 2016 |
| Cash | $114,800 | $106,600 |
| Short-term investments | 85,280 | 65,600 |
| Accounts receivable (net) | 160,720 | 131,200 |
| Inventory | 205,000 | 221,400 |
| Prepaid expenses | 47,560 | 37,720 |
| Land | 213,200 | 213,200 |
| Building and equipment (net) | 295,200 | 287,000 |
| $1,121,760 | $1,062,720 | |
| Liabilities and Stockholders Equity | ||
| Notes payable | $164,000 | $164,000 |
| Accounts payable | 78,720 | 68,880 |
| Accrued liabilities | 82,000 | 65,600 |
| Bonds payable, due 2020 | 246,000 | 246,000 |
| Common stock, $10 par | 328,000 | 328,000 |
| Retained earnings | 223,040 | 190,240 |
| $1,121,760 | $1,062,720 |
| MESSERSMITH COMPANY Income Statement For the Years Ended December 31 | ||
| 2017 | 2016 | |
| Net sales | $1,394,000 | $1,295,600 |
| Cost of goods sold | 1,016,800 | 943,000 |
| Gross profit | 377,200 | 352,600 |
| Operating expenses | 306,680 | 283,720 |
| Net income | $70,520 | $68,880 |
Additional information:
| 1. | Inventory at the beginning of 2016 was $193,520. |
| 2. | Total assets at the beginning of 2016 were $1,033,200. |
| 3. | No common stock transactions occurred during 2016 or 2017. |
| 4. | All sales were on account. Accounts receivable, net at the beginning of 2016 were $144,320. |
| 5. | Notes payable are classified as current liabilities. |
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Intermediate Accounting
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
9th Canadian Edition, Volume 2
470964731, 978-0470964736, 978-0470161012
