Problem 4:

a) The comparative balance sheet of X Company appears below:

X Company

Comparative Balance Sheet

December 31,

Assets 2018 2017

Current assets.................................................................... $ 360,000 $300,000

Plant assets ....................................................................... 640,000 500,000

Total assets ...................................................................... $1,000,000 $800,000

Liabilities and stockholders' equity

Current liabilities .............................................................. $ 150,000 $120,000

Long-term debt ................................................................. 240,000 160,000

Common stock ................................................................. 350.000 280,000

Retained earnings ............................................................. 260,000 240,000

Total liabilities and stockholders' equity ..................... $1,000,000 $800,000

Instructions

(a) Using horizontal analysis, show the percentage change for each balance sheet item using 2017 as a base year.

(b) Using vertical analysis, prepare a common size comparative balance sheet.

2. The financial statements of Ahmed Manufacturing Company appear below:

ABC Manufacturing Company

Comparative Balance Sheet

December 31,

Assets 2019 2018

Cash................................................................................................... $ 250,000 $ 400,000

Short-term investments...................................................................... 150,000 600,000

Accounts receivable (net).................................................................. 500,000 300,000

Inventory........................................................................................... 500,000 700,000

Property, plant and equipment (net).................................................. 2,600,000 3,000,000

Total assets ................................................................................. $4,000,000 $5,000,000

Liabilities and stockholders' equity

Accounts payable............................................................................... $ 200,000 $ 300,000

Short-term notes payable................................................................... 300,000 900,000

Bonds payable................................................................................... 900,000 1,600,000

Common stock................................................................................... 1,500,000 1,500,000

Retained earnings.............................................................................. 1,100,000 700,000

Total liabilities and stockholders' equity $4,000,000 $5,000,000

ABC Manufacturing Company

Income Statement

For the Year Ended December 31, 2013

Net sales....................................................................... $4,000,000

Cost of goods sold........................................................ 2,400,000

Gross profit.................................................................. 1,600,000

Expenses

Operating expenses.................................................. $420,000

Interest expense....................................................... 180,000

Total expenses.................................................... 600,000

Income before income taxes.......................................... 1,000,000

Income tax expense...................................................... 300,000

Net income................................................................... $ 700,000

Additional information:

a. Cash dividends of $230,000 were declared and paid in 2019.

b. Weighted-average number of shares of common stock outstanding during 2019 was 300,000 shares.

c. Market value of common stock on December 31, 2019, was $210 per share.

Instructions

Using the financial statements and additional information, compute the following ratios for Ahmed Manufacturing Company for 2013.

Show all computations.

1. Current ratio;

2. Return on common stockholders' equity;

3. Price-earnings ratio;

4. Acid-test ratio;

5. Receivables turnover;

6. Times interest earned;

7. Profit margin;

8. Days in inventory

9. Payout ratio;

10. Return on assets.