Question

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. (Round all answers to 1 decimal places, e.g. 1.8 or 1.8%. If % change is a decrease show the numbers as negative, e.g. -1.83% or (1.83%).)

1.20,000 shares of common stock were sold at par on July 1, 2018. Net income for 2018 was $54,000.  

2.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 $898,000.

3.The market price of common stock was $9 and $12 on December 31, 2017 and 2018, respectively. Net income for 2018 was $54,000.

2018 2017 % Change

Return on common stockholders’ equity.

% % %

Debt to assets ratio

% % %

Price earnings ratio

times times %

Answer 1

A
Let's assume the net income of 2017 was 'X'
Therefore, net change in income between 2017 & 2018 will be '54000-X'
Net increase in common stock between 2017 & 2018 will be 20000
Therefore, change in return on common stockholders equity
54000-X
20000
B
Let's assume repayment of note amount is 'M'
Let's assume net assets as on 2017 is 'N'
Therefore, change in debt to assets ratio
M
N - 898000
C
P/E ratio for 2017
Let's assume number of shares as on 2017 was 'P'
Therefore, no. of shares as on 2017 will be 'P+20000'
EPS for 2018 =
54000
p+20000
P/ E ratio for 2018	12 / (54000 / (P+20000))
12P + 240000
54000
P + 20000
4500