Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 on December 31, 20Y2.

Question not attempted.

Marshall Inc.

Comparative Retained Earnings Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Retained earnings, January 1	$3,716,000.00	$3,266,000.00
3	Net income	610,000.00	560,000.00
4	Total	$4,326,000.00	$3,826,000.00
5	Dividends:
6	On preferred stock	$10,000.00	$10,000.00
7	On common stock	100,000.00	100,000.00
8	Total dividends	$110,000.00	$110,000.00
9	Retained earnings, December 31	$4,216,000.00	$3,716,000.00

Question not attempted.

Marshall Inc.

Comparative Income Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Sales	$10,840,000.00	$10,000,000.00
3	Cost of goods sold	6,000,000.00	5,440,000.00
4	Gross profit	$4,840,000.00	$4,560,000.00
5	Selling expenses	$2,160,000.00	$2,000,000.00
6	Administrative expenses	1,627,500.00	1,500,000.00
7	Total operating expenses	$3,787,500.00	$3,500,000.00
8	Income from operations	$1,052,500.00	$1,060,000.00
9	Other revenue	99,500.00	20,000.00
10		$1,152,000.00	$1,080,000.00
11	Other expense (interest)	132,000.00	120,000.00
12	Income before income tax	$1,020,000.00	$960,000.00
13	Income tax expense	410,000.00	400,000.00
14	Net income	$610,000.00	$560,000.00

Question not attempted.

Marshall Inc.

Comparative Balance Sheet

December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Assets
3	Current assets:
4	Cash	$1,050,000.00	$950,000.00
5	Marketable securities	301,000.00	420,000.00
6	Accounts receivable (net)	584,000.00	500,000.00
7	Inventories	410,000.00	380,000.00
8	Prepaid expenses	107,000.00	20,000.00
9	Total current assets	$2,452,000.00	$2,270,000.00
10	Long-term investments	800,000.00	800,000.00
11	Property, plant, and equipment (net)	5,750,000.00	5,184,000.00
12	Total assets	$9,002,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$836,000.00	$788,000.00
15	Long-term liabilities:
16	Mortgage note payable, 6%,	$200,000.00	$0.00
17	Bonds payable, 4%,	3,000,000.00	3,000,000.00
18	Total long-term liabilities	$3,200,000.00	$3,000,000.00
19	Total liabilities	$4,036,000.00	$3,788,000.00
20	Stockholders’ Equity
21	Preferred 4% stock, $5 par	$250,000.00	$250,000.00
22	Common stock, $5 par	500,000.00	500,000.00
23	Retained earnings	4,216,000.00	3,716,000.00
24	Total stockholders’ equity	$4,966,000.00	$4,466,000.00
25	Total liabilities and stockholders’ equity	$9,002,000.00	$8,254,000.00

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year.

1.	Working capital The excess of the current assets of a business over its current liabilities.
2.	Current ratio A financial ratio that is computed by dividing current assets by current liabilities.
3.	Quick ratio A financial ratio that measures the ability to pay current liabilities with quick assets (cash, temporary investments, accounts receivable), computed as quick assets divided by current liabilities.
4.	Accounts receivable turnover The relationship between sales and accounts receivable, computed by dividing the sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.
5.	Number of days’ sales in receivables The relationship between sales and accounts receivable, computed by dividing the average accounts receivable by the average daily sales.
6.	Inventory turnover The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.
7.	Number of days’ sales in inventory The relationship between the volume of sales and inventory, computed by dividing average inventory by the average daily cost of goods sold.
8.	Ratio of fixed assets to long-term liabilities A solvency ratio that measures how much fixed assets a company has to support its long-term debt.
9.	Ratio of liabilities to stockholders’ equity A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders' equity, calculated as total liabilities divided by total stockholders' equity.
10.	Times interest earned A ratio that measures the risk that interest payments will not be made if earnings decrease, calculated as income before income tax and interest expense divided by interest expense.
11.	Asset turnover Ratio that measures how effectively a business uses its assets to generate revenues, computed as sales divided by average total assets.
12.	Return on total assets A measure of the profitability of assets, without regard to the equity of creditors and stockholders in the assets.
13.	Return on stockholders’ equity A measure of profitability computed by dividing net income by average stockholders' equity.
14.	Return on common stockholders’ equity A measure of profitability computed by dividing net income, reduced by preferred dividend requirements, by average common stockholders' equity.
15.	Earnings per share on common stock The profitability ratio of net income available to common shareholders to the number of common shares outstanding.
16.	Price-earnings ratio The ratio of the market price per share of common stock, at a specific date, to the annual earnings per share.
17.	Dividends per share Measures the extent to which earnings are being distributed to common shareholders. of common stock
18.	Dividend yield A ratio, computed by dividing the annual dividends paid per share of common stock by the market price per share at a specific date, that indicates the rate of return to stockholders in terms of cash dividend distributions.

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Questions

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year.

1. Working Capital	$
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables
6. Inventory turnover
7. Number of days’ sales in inventory
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders’ equity
10. Times interest earned
11. Asset turnover
12. Return on total assets	%
13. Return on stockholders’ equity	%
14. Return on common stockholders’ equity	%
15. Earnings per share on common stock	$
16. Price-earnings ratio
17. Dividends per share of common stock	$
18. Dividend yield	%

Answer 1

1.

Working capital = Current assets - Current liabilities

= 2,452,000 - 836,000

= $1,616,000

2.

Current ratio = Current assets/Current liabilities

= 2,452,000/836,000

= 2.93

3.

Quick assets = Cash + Marketable securities + Accounts receivables

= 1,050,000 + 301,000 + 584,000

= $1,935,000

Quick ratio = Quick assets/Current liabilities

= 1,935,000/836,000

= 2.31

4.

Average accounts receivables = (Begining accounts receivables + Ending accounts receivables)/2

= (584,000 + 500,000)/2

= 1,084,000/2

= $542,000

Accounts receivable turnover = Sales/Average accounts receivables

= 10,840,000/542,000

= 20 times