Question

Measures of liquidity, Solvency, and Profitability

1. The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 58 on December 31, 20Y2.

   Marshall Inc.
   Comparative Retained Earnings Statement
   For the Years Ended December 31, 20Y2 and 20Y1
   			20Y2		20Y1
   Retained earnings, January 1			$3,362,100		$2,825,200
   Net income			717,600		578,700
   Total			$4,079,700		$3,403,900
   Dividends:
   	On preferred stock		$9,800		$9,800
   	On common stock		32,000		32,000
   		Total dividends	$41,800		$41,800
   Retained earnings, December 31			$4,037,900		$3,362,100

   Marshall Inc.
   Comparative Income Statement
   For the Years Ended December 31, 20Y2 and 20Y1
   	20Y2		20Y1
   Sales	$4,232,540		$3,899,650
   Cost of goods sold	1,664,400		1,531,250
   Gross profit	$2,568,140		$2,368,400
   Selling expenses	$812,490		$1,003,410
   Administrative expenses	692,130		589,300
   Total operating expenses	$1,504,620		$1,592,710
   Income from operations	$1,063,520		$775,690
   Other revenue	55,980		49,510
   	$1,119,500		$825,200
   Other expense (interest)	304,000		167,200
   Income before income tax	$815,500		$658,000
   Income tax expense	97,900		79,300
   Net income	$717,600		$578,700

   Marshall Inc.
   Comparative Balance Sheet
   December 31, 20Y2 and 20Y1
   			20Y2		20Y1
   Assets
   Current assets
   	Cash		$727,650		$686,960
   	Marketable securities		1,101,310		1,138,380
   	Accounts receivable (net)		839,500		788,400
   	Inventories		627,800		481,800
   	Prepaid expenses		137,659		137,390
   		Total current assets	$3,433,919		$3,232,930
   Long-term investments			2,148,091		206,267
   Property, plant, and equipment (net)			4,940,000		4,446,000
   Total assets			$10,522,010		$7,885,197
   Liabilities
   Current liabilities			$1,184,110		$933,097
   Long-term liabilities:
   	Mortgage note payable, 8%		$1,710,000		$0
   	Bonds payable, 8%		2,090,000		2,090,000
   		Total long-term liabilities	$3,800,000		$2,090,000
   Total liabilities			$4,984,110		$3,023,097
   Stockholders' Equity
   Preferred $0.70 stock, $50 par			$700,000		$700,000
   Common stock, $10 par			800,000		800,000
   Retained earnings			4,037,900		3,362,100
   Total stockholders' equity			$5,537,900		$4,862,100
   Total liabilities and stockholders' equity			$10,522,010		$7,885,197

   Required:

   Determine the following measures for 20Y2, 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.

   1. Working capital	$
   2. Current ratio
   3. Quick ratio
   4. Accounts receivable turnover
   5. Number of days' sales in receivables		days
   6. Inventory turnover
   7. Number of days' sales in inventory		days
   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

Answer of Part 1:

Working Capital = Current Assets – Current Liabilities
Working Capital = $3,433,919 - $1,184,110
Working Capital = $2,249,809

Answer of Part 2:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $3,433,919 / $1,184,110
Current Ratio = 2.9:1

Answer of Part 3:

Quick Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
quick Ratio = ($3,433,919 - $627,800 - $137,659) / $1,184,110
Quick Ratio = $2,668,460 / $1,184,110
Quick Ratio = 2.3:1

Answer of Part 4:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable)/2
Average Accounts Receivable = ($788,400 + $839,500)/2
Average Accounts Receivable = $813,950

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $4,232,540 / $813,950
Accounts Receivable Turnover = 5.2 times

Answer of Part 5:

Number of Days sales in receivables = 365 days / Accounts Receivable Turnover
Number of Days Sales in Receivable = 365 / 5.2
Number of Days sales in receivable = 70.2 days