Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.40 on December 31, 20Y2.

Marshall Inc.

Comparative Retained Earnings Statement

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

1		20Y2	20Y1
2	Retained earnings, January 1	$3,712,000.00	$3,262,000.00
3	Net income	630,000.00	560,000.00
4	Total	$4,342,000.00	$3,822,000.00
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	$4,232,000.00	$3,712,000.00

Marshall Inc.

Comparative Income Statement

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

1		20Y2	20Y1
2	Sales	$10,860,000.00	$10,000,000.00
3	Cost of goods sold	6,000,000.00	5,440,000.00
4	Gross profit	$4,860,000.00	$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	$1,072,500.00	$1,060,000.00
9	Other revenue	99,500.00	20,000.00
10		$1,172,000.00	$1,080,000.00
11	Other expense (interest)	132,000.00	120,000.00
12	Income before income tax	$1,040,000.00	$960,000.00
13	Income tax expense	410,000.00	400,000.00
14	Net income	$630,000.00	$560,000.00

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	109,000.00	20,000.00
9	Total current assets	$2,454,000.00	$2,270,000.00
10	Long-term investments	800,000.00	800,000.00
11	Property, plant, and equipment (net)	5,770,000.00	5,184,000.00
12	Total assets	$9,024,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$842,000.00	$792,000.00
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	$4,042,000.00	$3,792,000.00
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	4,232,000.00	3,712,000.00
24	Total stockholders’ equity	$4,982,000.00	$4,462,000.00
25	Total liabilities and stockholders’ equity	$9,024,000.00	$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
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

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Questions

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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	%

Points:

4 / 18

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Check My Work

1.	Subtract current liabilities from current assets.
2.	Divide current assets by current liabilities.
3.	Divide quick assets by current liabilities. Quick assets are cash, temporary investments, and receivables.
4.	Divide sales by average accounts receivable. Average Accounts Receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2
5.	Divide average accounts receivable by average daily sales. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2. Average daily sales are sales divided by 365 days.
6.	Divide cost of goods sold by average inventory. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2
7.	Divide average inventory by average daily cost of goods sold. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2. Average daily cost of goods sold is cost of goods sold divided by 365 days.
8.	Divide property, plant, and equipment (net) by long-term liabilities.
9.	Divide total liabilities by total stockholders' equity.
10.	Divide the sum of income before income tax and interest expense by interest expense.
11.	Divide sales by average total assets, excluding long-term investments. Average Total Assets = (Beginning Total Assets + Ending Total Assets) ÷ 2
12.	Divide the sum of net income plus interest expense by average total assets. Average Total Assets = (Beginning Total Assets + Ending Total Assets) ÷ 2
13.	Divide net income by average total stockholders' equity. Average Total Stockholders' Equity = (Beginning Total Stockholders' Equity + Ending Total Stockholders' Equity) ÷ 2.
14.	Divide net income minus preferred dividends from the retained earnings statement by average common stockholders' equity. Common Stockholders' Equity = Common Stock + Retained Earnings. Average Common Stockholders' Equity = (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity) ÷ 2
15.	Divide net income minus preferred dividends from the retained earnings statement by common shares outstanding (common stock ÷ par value).
16.	Divide common market share price by common earnings per share (use answer from requirement 15).
17.	Divide common dividends (from Retained Earnings Statement) by common shares outstanding (common stock ÷ par value).
18.	Divide common dividends per share (use answer from requirement 17) by market share price

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

Solution:

Working Capital
Formula	Current Assets - Current Liabilities
	20Y2
Current Assets	2454000
Current Liabilities	842000
Working Capital	16,12,000.00
Current Ratio
Formula	Current Assets / Current Liabilities
	20Y2
Current Assets	2454000
Current Liabilities	842000
Current Ratio	2.91
Quick Ratio
Formula	Quick Assets / Current liabilities
Quick Assets	2044000
(cash, marketable securities and accounts receivables)
Current liabilities	842000
Acid test Ratio	2.43
Accounts Rec. Turnover and Days sales in Receivables
Formula	365 / Turnover ratio
Turnover Ratio	Sales / Average accounts receivables
	20Y2
Accounts receivables (beg)	500000
Accounts receivables (end)	584000
	1084000
Average	542000
Credit Sales	10860000
AR Turnover ratio	20.04
Days Sales in Receivables	18.22
Inventory Turnover
Formula	Cost of goods sold / Average Inventory
	20Y2
Inventory (beg)	380000
Inventory (end)	410000
	790000
Average	395000
Cost of goods sold	6000000
Inventory Turnover	15.19
Days Sales in Inventory
Formula	365 / Inventory turnover
	This Year
Days Sales in Inventory	24.03

Ratio of Fixed Assets to Long Term Liabilities
Formula	Fixed Assets / Long Term Liabilities
Fixed Assets	5770000
Long Term Liabilities	3200000
Ratio of Fixed Assets to Long Term Liabilities	1.80
Ratio of Liabiliities to Stockholders Equity
Formula	Liabilities / Stockholders Equity
Total Liabilities	4042000
Total Stockholders Equity	4982000
Ratio of Liabiliities to Stockholders Equity	0.81

Times Interest Earned
Formula	Net Operating Income / Interest paid
	20Y2
Net Operating Income	1072500
Interest paid	132000
Times Interest Earned	8.13

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