The following financial information is for Priscoll Company. PRISCOLL COMPANY Balance Sheets December 31 Assets2017 2016 Cash$70,000
Question:
The following financial information is for Priscoll Company.
PRISCOLL COMPANY
Balance Sheets
December 31
Assets2017
2016
Cash$70,000
$65,000
Debt investments (short-term)55,000
40,000
Accounts receivable104,000
90,000
Inventory230,000
165,000
Prepaid expenses25,000
23,000
Land130,000
130,000
Building and equipment (net)260,000
185,000
Total assets$874,000
$698,000
Liabilities and Stockholders' EquityNotes payable$170,000
$120,000
Accounts payable65,000
52,000
Accrued liabilities40,000
40,000
Bonds payable, due 2020250,000
170,000
Common stock, $10 par200,000
200,000
Retained earnings149,000
116,000
Total liabilities and stockholders' equity$874,000
$698,000
PRISCOLL COMPANY
Income Statements
For the Years Ended December 31
2017
2016
Sales revenue$882,000
$790,000
Cost of goods sold640,000
575,000
Gross profit242,000
215,000
Operating expenses190,000
167,000
Net income$52,000
$48,000
Additional information:
1.
Inventory at the beginning of 2016 was $115,000.
2.
Accounts receivable (net) at the beginning of 2016 were $86,000.
3.
Total assets at the beginning of 2016 were $660,000.
4.
No common stock transactions occurred during 2016 or 2017.
5.
All sales were on account.
Instructions
(a)
Indicate, by using ratios, the change in liquidity and profitability of Priscoll Company from 2016 to 2017. (Note:Not all profitability ratios can be computed nor can cash-basis ratios be computed.)
(b)
The following 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.
Situation
Ratio
1.18,000 shares of common stock were sold at par on July 1, 2018. Net income for 2018 was $54,000.Return on common stockholders' equity2.All of the notes payable were paid in 2018. All other liabilities remained at the same levels as at December 31, 2018. At December 31, 2018, total assets were $900,000.Debt to assets ratio3.The market price of common stock was $9 and $12 on December 31, 2017 and 2018, respectively. Net income for 2018 was $54,000.Price-earnings ratio
Compute selected ratios, and compare liquidity, profitability, and solvency for two companie
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