Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Rainbow Paint Co.s comparative financial statements for the years ending December 31, 2016 and 2015, are as follows. The market price of Rainbow Paint Co.s
Rainbow Paint Co.s comparative financial statements for the years ending December 31, 2016 and 2015, are as follows. The market price of Rainbow Paint Co.s common stock was $25 on December 31, 2016, and $30 on December 31, 2015. | ||
Rain Paint Co. | ||
Comparative Income Statement | ||
For the Years Ended December 31, 2016 and 2015 | ||
2016 | 2015 | |
Sales | 5,000,000 | 3,200,000 |
Cost of goods sold | 3,400,000 | 2,080,000 |
Gross Profit | 1,600,000 | 1,120,000 |
Selling expenses | 650,000 | 464,000 |
Administrative expenses | 325,000 | 224,000 |
Total operating expenses | 975,000 | 688,000 |
Income from operations | 625,000 | 432,000 |
Other income | 25,000 | 19,200 |
650,000 | 451,200 | |
Other expense (interest) | 105,000 | 64,000 |
Income before income tax | 545,000 | 387,200 |
Income tax expense | 300,000 | 176,000 |
Net income | 245,000 | 211,200 |
Rain Paint Co. | ||
Comparative Retainined Earnings Statement | ||
For the Years Ended December 31, 2016 and 2015 | ||
2016 | 2015 | |
Retained earnings, January 1 | 723,000 | 581,800 |
Add net income for year | 245,000 | 211,200 |
Total | 968,000 | 793,000 |
Deduct dividends: | ||
On preferred stock | 40,000 | 40,000 |
On common stock | 45,000 | 30,000 |
Total | 85,000 | 70,000 |
Retained earnings, December 31 | 883,000 | 723,000 |
Rain Paint Co. | ||
Comparative Balance Sheet | ||
December 31, 2016 and 2015 | ||
Dec. 31, 2016 | Dec. 31, 2015 | |
Assets | ||
Current assets: | ||
Cash | 175,000 | 125,000 |
Temporary investments | 150,000 | 50,000 |
Accounts receivable (net) | 425,000 | 325,000 |
Inventories | 720,000 | 480,000 |
Prepaid expenses | 30,000 | 20,000 |
Total current assets | 1,500,000 | 1,000,000 |
Long-term investments | 250,000 | 225,000 |
Property, plant, and equipment (net) | 2,093,000 | 1,948,000 |
Total assets | 3,843,000 | 3,173,000 |
Liabilities | ||
Current liabilites | 750,000 | 650,000 |
Long-term liabilites: | ||
Mortgage note payable, 10%, due 2017 | 410,000 | - |
Bonds payable, 8%, due 2020 | 800,000 | 800,000 |
Total long-term liabilities | 1,210,000 | 800,000 |
Total liabilities | 1,960,000 | 1,450,000 |
Stockholders' Equity | ||
Preferred 8% stock, $100 par | 500,000 | 500,000 |
Common stock, $10 par | 500,000 | 500,000 |
Retained earnings | 883,000 | 723,000 |
Total stockholders' equity | 1,883,000 | 1,723,000 |
Total liabilities and stockholders' equity | 3,843,000 | 3,173,000 |
Given the information presented above a) Calculate the liquidity ratios for the year ended at Dec. 31, 2016. Must show equations and calculations underneath the table. b) Identify factors that limit the usefulness of ratio analysis. | |
Rain Paint | |
(1) Liquidity ratios | |
Current | |
Quick | |
(2) Solvency | |
Interest coverage | |
(3) Profitability | |
ROA | |
ROE |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started