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Essay (any type)
August 17, 2021
Financial information for Messersmith Company is presented below.
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MESSERSMITH COMPANY Balance Sheets December 31
|
||
|
Assets |
2015 |
2014 |
|
Cash |
$ 70,000 |
$ 65,000 |
|
Short-term investments |
52,000 |
40,000 |
|
Accounts receivable (net) |
98,000 |
80,000 |
|
Inventory |
125,000 |
135,000 |
|
Prepaid expenses |
29,000 |
23,000 |
|
Land |
130,000 |
130,000 |
|
Building and equipment (net) |
180,000 |
175,000 |
|
$684,000 |
$648,000 |
|
|
Liabilities and Stockholders Equity |
||
|
Notes payable |
$100,000 |
$100,000 |
|
Accounts payable |
48,000 |
42,000 |
|
Accrued liabilities |
50,000 |
40,000 |
|
Bonds payable, due 2016 |
150,000 |
150,000 |
|
Common stock, $10 par |
200,000 |
200,000 |
|
Retained earnings |
136,000 |
116,000 |
|
$684,000 |
$648,000 |
|
|
MESSERSMITH COMPANY Income Statement For the Years Ended December 31
|
||
|
2015 |
2014 |
|
|
Net sales |
$850,000 |
$790,000 |
|
Cost of goods sold |
620,000 |
575,000 |
|
Gross profit |
230,000 |
215,000 |
|
Operating expenses |
187,000 |
173,000 |
|
Net income |
$ 43,000 |
$ 42,000 |
Additional information:
Instructions
(a)Indicate, by using ratios, the change in liquidity and profitability of Messersmith Company from 2014 to 2015. (Note:Not all profitability ratios can be computed.)
(b)Given below are three independent situations and a ratio that may be affected. For each situation, compute the affected ratio (1) as of December 31, 2015, and (2) as of December 31, 2016, after giving effect to the situation. Net income for 2016 was $50,000. Total assets on December 31, 2016, were $700,000.
|
Situation |
Ratio |
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18,000 shares of common stock were sold at par on July 1, 2016. |
Return on common stockholders” equity |
|
All of the notes payable were paid in 2016 The only change in liabilities was that the notes payable were paid. |
Debt to assets ratio |
|
Market price of common stock was $9 on December 31, 2015, and $12.80 on December 31, 2016. |
Price-earnings ratio
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