Question

Nineteen Measures of Solvency and Profitability

The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $62 on December 31, 2016.

Blige Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 2016 and 2015
			2016		2015
Retained earnings, January 1			$2,822,400		$2,389,100
Add net income for year			651,200		489,300
Total			$3,473,600		$2,878,400
Deduct dividends
	On preferred stock		$8,400		$8,400
	On common stock		47,600		47,600
		Total	$56,000		$56,000
Retained earnings, December 31			$3,417,600		$2,822,400

Blige Inc.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
	2016		2015
Sales	$3,895,680		$3,584,000
Sales returns and allowances	19,380		12,600
Sales	$3,876,300		$3,571,400
Cost of goods sold	1,403,060		1,290,820
Gross profit	$2,473,240		$2,280,580
Selling expenses	$836,910		$1,031,700
Administrative expenses	712,930		605,920
Total operating expenses	1,549,840		1,637,620
Income from operations	$923,400		$642,960
Other income	48,600		41,040
	$972,000		$684,000
Other expense (interest)	232,000		128,000
Income before income tax	$740,000		$556,000
Income tax expense	88,800		66,700
Net income	$651,200		$489,300

Blige Inc.
Comparative Balance Sheet
December 31, 2016 and 2015
			Dec. 31, 2016		Dec. 31, 2015
Assets
Current assets
	Cash		$639,200		$689,560
	Temporary investments		967,440		1,142,690
	Accounts receivable (net)		678,900		635,100
	Inventories		511,000		394,200
	Prepaid expenses		120,932		137,910
		Total current assets	$2,917,472		$2,999,460
Long-term investments			1,768,208		923,289
Property, plant, and equipment (net)			3,770,000		3,393,000
Total assets			$8,455,680		$7,315,749
Liabilities
Current liabilities			$858,080		$1,613,349
Long-term liabilities
	Mortgage note payable, 8%, due 2021		$1,300,000		$0
	Bonds payable, 8%, due 2017		1,600,000		1,600,000
		Total long-term liabilities	$2,900,000		$1,600,000
Total liabilities			$3,758,080		$3,213,349
Stockholders' Equity
Preferred $0.7 stock, $50 par			$600,000		$600,000
Common stock, $10 par			680,000		680,000
Retained earnings			3,417,600		2,822,400
	Total stockholders' equity		$4,697,600		$4,102,400
Total liabilities and stockholders' equity			$8,455,680		$7,315,749

Required:

Determine the following measures for 2016, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

14. Rate earned on stockholders' equity fill in the blank %

15. Rate earned on common stockholders' equity fill in the blank %1

6. Earnings per share on common stock fill in the blank

17. Price-earnings ratio fill in the blank

Answer 1

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Blige
Statement of Earnings	2016	2015
Net Income	651,200.00	489,300.00
Preferred stock Dividend	8,400.00	8,400.00
Net Income - available for common stockholder	642,800.00	480,900.00
Statement of Financial Position
Stockholders' Equity	2016	2015
Preferred $ 0.70 stock, $ 50 par	600,000.00	600,000.00
Common Stock, $ 10 par	680,000.00	680,000.00
Retained Earnings	3,417,600.00	2,822,400.00
Total Stockholders' Equity	4,697,600.00	4,102,400.00
Average Stockholders' Equity	4,400,000.00
Common Stock, $ 10 par	680,000.00	680,000.00
Retained Earnings	3,417,600.00	2,822,400.00
Total Common Stockholders' Equity	4,097,600.00	3,502,400.00
Average Common Stockholders' Equity	3,800,000.00
Common Stock, $ 10 par	680,000.00
Par Value	10.00
Number of shares in Common Stock	68,000.00
Market price per share	62.00

	2016
Ans 14- Return on stockholders’ equity
Net Income/ Average stockholders’ equity	14.8%
Ans 15- Return on Common stockholders’ equity
Net Income - available for common stockholder / Average Common stockholders’ equity	16.9%
Ans 16- Earnings Per share on Common Stock
Net Income - available for common stockholder /Number of shares in Common Stock	9.5
Ans 17- Price Earnings Ratio
Market Price/ Earnings Per share on Common Stock	6.6