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Problem 18-4A Financial information for Messersmith Company is presented below.

MESSERSMITH COMPANY
Balance Sheets
December 31
Assets 2017 2016
Cash $?78,400 $?72,800
Short-term investments 58,240 44,800
Accounts receivable (net)
109,760 89,600
Inventory 140,000 151,200
Prepaid expenses 32,480 25,760
Land 145,600 145,600
Building and equipment (net) 201,600 196,000
$766,080 $725,760
Liabilities and Stockholders? Equity
Notes payable $112,000 $112,000
Accounts payable 53,760 47,040
Accrued liabilities 56,000 44,800
Bonds payable, due 2020 168,000 168,000
Common stock, $10 par 224,000 224,000
Retained earnings 152,320 129,920
$766,080 $725,760

MESSERSMITH COMPANY
Income Statement
For the Years Ended December 31
2017 2016
Net sales $952,000 $884,800
Cost of goods sold 694,400 644,000
Gross profit 257,600 240,800
Operating expenses 209,440 193,760
Net income $?48,160 $?47,040

Additional information:

1. Inventory at the beginning of 2016 was $132,160.
2. Total assets at the beginning of 2016 were $705,600.
3. No common stock transactions occurred during 2016 or 2017.
4. All sales were on account. Accounts receivable, net at the beginning of 2016 were $98,560.
5. Notes payable are classified as current liabilities.
Indicate, by using ratios, the change in liquidity and profitability of Messersmith Company from 2016 to 2017.?(Round Earnings per share to 2 decimal places, e.g.?1.65, and all other answers to 1 decimal place, e.g. 6.8 or 6.8% .)

2016 2017
LIQUIDITY
Current :1 :1
Acid-test :1 :1
Accounts receivable turnover ?times ?times
Inventory turnover ?times ?times
PROFITABILITY
Profit margin % %
Asset turnover ?times ?times
Return on assets % %
Earnings per share $ $

LINK TO TEXT
Given below 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. Net income for 2018 was $56,000. Total assets on December 31, 2018, were $784,000.?(Round answers to 1 decimal place, e.g. 6.8 or 6.8% .)

Situation Ratio
(1) 20,160 shares of common stock were sold at par on July 1, 2018. Return on common stockholders? equity
(2) All of the notes payable were paid in 2018. The only change in liabilities was that the notes payable were paid. Debt to assets
(3) Market price of common stock was $10 on December 31, 2017, and $14.34 on December 31, 2018. Price-earnings ratio

2017 2018
Return on common stockholders? equity % %
Debt to assets % %
Price-earnings ratio ?times

?times

 


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Apr 19, 2020

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