Question No: 2

The financial statements of Ahmed Company appear below:

Ahmed 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

Ahmed 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 Salem Company for 2019. 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.