Question

In: Accounting

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common...

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

631,000.00

560,000.00

4

Total

$4,343,000.00

$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

$4,233,000.00

$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 income

99,500.00

20,000.00

10

$1,172,000.00

$1,080,000.00

11

Other expense (interest)

131,000.00

120,000.00

12

Income before income tax

$1,041,000.00

$960,000.00

13

Income tax expense

410,000.00

400,000.00

14

Net income

$631,000.00

$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)

586,000.00

500,000.00

7

Inventories

410,000.00

380,000.00

8

Prepaid expenses

107,000.00

20,000.00

9

Total current assets

$2,454,000.00

$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

$9,004,000.00

$8,254,000.00

13

Liabilities

14

Current liabilities

$821,000.00

$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

$4,021,000.00

$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

4,233,000.00

3,712,000.00

24

Total stockholders’ equity

$4,983,000.00

$4,462,000.00

25

Total liabilities and stockholders’ equity

$9,004,000.00

$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.

Answer 1-18

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

Solutions

Expert Solution

1.working capital Current assets-current liabilities 2454000-821000 1633000
2.Current ratio Current assets/current liabilities 2454000/821000 2.99
3.Quick ratio (total current assets-inventory)/Total current liabilities (2454000-410000)/821000 2.49
4.Accounts receivable turnover Net credit sales/average trade receivables 10860000*2/(586000+500000) 20
5.Number of days’ sales in receivables. Accounts receivable* no of days/Credut sales 586000*365/10860000 19.70
6.Inventory turnover Cost of goods sold/Average Inventory 6000000*2/(410000+380000) 15.19
7.Number of days’ sales in inventory Inventory*365/Cost of sales 410000*365/6000000 24.94
8.Ratio of fixed assets to long-term liabilities Fixed assets/long term liabilities (5750000+800000)/3200000 2.05
9.Ratio of liabilities to stockholders’ equity Liabilities/stockholders equity 9004000/4983000 1.81
10.Times interest earned EBIT/Interest expense 1172000/131000 8.95
11.Asset turnover Cost of sales/Assets 6000000/9004000 0.67
12.Return on total assets Net income/total assets 631000/9004000 0.07
13.Return on stockholders’ equity Net Income/Total shareholders equity 631000/4983000 0.13
14.Return on common stockholders’ equity. Net Income/Total common shareholders equity 631000/500000 1.26
15.Earnings per share on common stock Net profit available for common stock/No of Equity shares (4343000-10000)/(500000/5) 43.33
16.Price-earnings ratio Share price/Earnings per share 82.4/43.33 1.90
17.Dividends per share of common stock Dividend amount/No of equity shares 100000/(500000/5) 1
18.Dividend yield Annual dividend/Current stock price 1/82.4 0.01

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