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 $82.80 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

$3,692,000.00

$3,262,000.00

3

Net income

610,000.00

540,000.00

4

Total

$4,302,000.00

$3,802,000.00

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

$4,192,000.00

$3,692,000.00

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

5,460,000.00

4

Gross profit

$4,860,000.00

$4,540,000.00

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

$1,040,000.00

9

Other revenue

99,500.00

20,000.00

10

$1,172,000.00

$1,060,000.00

11

Other expense (interest)

132,000.00

120,000.00

12

Income before income tax

$1,040,000.00

$940,000.00

13

Income tax expense

430,000.00

400,000.00

14

Net income

$610,000.00

$540,000.00

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

430,000.00

380,000.00

8

Prepaid expenses

109,000.00

20,000.00

9

Total current assets

$2,474,000.00

$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

$9,024,000.00

$8,254,000.00

13

Liabilities

14

Current liabilities

$882,000.00

$812,000.00

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

$4,082,000.00

$3,812,000.00

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

4,192,000.00

3,692,000.00

24

Total stockholders’ equity

$4,942,000.00

$4,442,000.00

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

Solutions

Expert Solution

No. Ratio Formula
1 Working capital Total current assets - Current liabilities
2 Current ratio Total current assets / Current liabilities
3 Quick ratio (Cash + Marketable securities + Accounts receivable) / Current liabilities
4 Accounts receivable turnover Sales / Average accounts receivable
5 Number of days’ sales in receivables 365 / Accounts receivable turnover
6 Inventory turnover Cost of goods sold / Average inventory
7 Number of days’ sales in inventory 365 / Inventory turnover
8 Ratio of fixed assets to long-term liabilities Property, plant, and equipment / Total long-term liabilities
9 Ratio of liabilities to stockholders’ equity Total liabilities / Total stockholders' equity
10 Times interest earned Income from operations / Interest expense
11 Asset turnover Sales / Average total assets
12 Return on total assets Net income / Average total assets
13 Return on stockholders’ equity Net income / Average stockholders' equity
14 Return on common stockholders’ equity (Net income - preferred dividends) / Average common stockholders' equity
15 Earnings per share on common stock (Net income - preferred dividends) / Number of common shares outstanding
16 Price-earnings ratio Market price per common share / Earnings per common share
17 Dividends per share of common stock Dividends on common stock / Number of common shares outstanding
18 Dividend yield Dividends per common share / Market price per common share
No. Ratio Calculation
1 Working capital =2474000-882000
2 Current ratio =2474000/882000
3 Quick ratio =(1050000+301000+584000)/882000
4 Accounts receivable turnover =10860000/((584000+500000)/2)
5 Number of days’ sales in receivables =365/20
6 Inventory turnover =6000000/((430000+380000)/2)
7 Number of days’ sales in inventory =365/14.8
8 Ratio of fixed assets to long-term liabilities =5750000/3200000
9 Ratio of liabilities to stockholders’ equity =4082000/4942000
10 Times interest earned =1072500/132000
11 Asset turnover =10860000/((9024000+8254000)/2)
12 Return on total assets =610000/((9024000+8254000)/2)
13 Return on stockholders’ equity =610000/((4942000+4442000)/2)
14 Return on common stockholders’ equity =(610000-10000)/(((500000+4192000)+(500000+3692000))/2)
15 Earnings per share on common stock =(610000-10000)/100000
16 Price-earnings ratio =82.8/6
17 Dividends per share of common stock =100000/100000
18 Dividend yield =1/82.8
No. Ratio Answer
1 Working capital 1592000 $
2 Current ratio 2.8 times
3 Quick ratio 2.2 times
4 Accounts receivable turnover 20.0 times
5 Number of days’ sales in receivables 18.3 days
6 Inventory turnover 14.8 times
7 Number of days’ sales in inventory 24.7 days
8 Ratio of fixed assets to long-term liabilities 1.8 times
9 Ratio of liabilities to stockholders’ equity 0.8 times
10 Times interest earned 8.1 times
11 Asset turnover 1.3 times
12 Return on total assets 7.1%
13 Return on stockholders’ equity 13.0%
14 Return on common stockholders’ equity 13.5%
15 Earnings per share on common stock 6.0 $
16 Price-earnings ratio 13.8 times
17 Dividends per share of common stock 1.0 $
18 Dividend yield 1.2%

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