Problem 14-4A

Financial information for Messersmith Company is presented below.

MESSERSMITH COMPANY

Balance Sheets December 31

Assets

2017

2016

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 2020

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

2017

2016

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:

Inventory at the beginning of 2016 was $118,000. Total assets at the beginning of 2016 were $630,000. No common stock transactions occurred during 2016 or 2017. All sales were on account. Accounts receivable, net at the beginning of 2016 were $88,000. Notes payable are classified as current liabilities.

Your answer is partially correct. Try again.

Indicate, by using ratios, the change in liquidity and profitability of Messersmith Company from 2016 to 2017. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all other answers to 1 decimal place, e.g. 6.8 or 6.8% .)

[Text Box: 2016 2017] [Text Box: Change]

Current Acid-test

Accounts receivable turnover

Inventory turnover

mes mes

mes mes

PROFITABILITY

Profit margin

Asset turnover Return on assets Earnings per share

mes

mes

Your answer is partially correct. Try again.

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 $50,000. Total assets on December 31, 2018, were $700,000. (Round answers to 1 decimal place, e.g. 6.8 or 6.8% .)

[Text Box: Situation Ratio]

18,000 shares of common stock were sold at par on July 1, 2018. Return on common

stockholders equity

All of the notes payable were paid in 2018. The only change inliabilities was that the notes payable werepaid.

Market price of common stock was $9 on December 31, 2017, and $12.80 on December 31, 2018.

Debt to assets ratio Price-earnings ratio

[Text Box: 2017 2018 Change]

Return on common stockholders equity Debt to assets

13.2 %

50.9 %

Price-earnings ratio

4.2

times

mes

Question Attempts: 2 of 3 used