Problem 14-4A Financial information for Ernie Bishop Company is presented below.
ID: 2499124 • Letter: P
Question
Problem 14-4A
Financial information for Ernie Bishop Company is presented below.
ERNIE BISHOP COMPANY
Balance Sheets
December 31
Assets
2013
2012
Liabilities and Stockholders’ Equity
ERNIE BISHOP COMPANY
Income Statement
For the Years Ended December 31
2013
2012
Additional information:
(a) Indicate, by using ratios, the change in liquidity and profitability of Ernie Bishop Company from 2012 to 2013. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all others to 1 decimal place, e.g. 6.8 or 6.8% .)
2012
2013
Change
LIQUIDITY
PROFITABILITY
(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, 2013, and (2) as of December 31, 2014, after giving effect to the situation. Net income for 2014 was $96,000. Total assets on December 31, 2014, were $1,344,000.
Situation
Ratio
2013
2014
Change
LINK TO TEXT
ERNIE BISHOP COMPANY
Balance Sheets
December 31
Assets
2013
2012
Cash $ 134,400 $ 124,800 Short-term investments 99,840 76,800 Receivables (net) 188,160 153,600 Inventory 240,000 259,200 Prepaid expenses 55,680 44,160 Land 249,600 249,600 Building and equipment (net) 322,560 336,000 $1,290,240 $1,244,160Liabilities and Stockholders’ Equity
Notes payable $192,000 192,000 Accounts payable 92,160 80,640 Accrued liabilities 84,480 76,800 Bonds payable, due 2016 288,000 288,000 Common stock, $10 par 384,000 384,000 Retained earnings 249,600 222,720 $1,290,240 $1,244,160Explanation / Answer
a.
2013 2012 Change LIQUIDITY Current 1.9 : 1 1.9 : 1 No change Acid-Test 1.3 : 1 1.1 : 1 Increase Receivable turnover 9.6 times 9.5 times Increase Inventory Turnover 6.6 times 6.3 times Increase PROFITABILITY Profit Margin 5.0% 5.3% Decrease Asset Turnover 1.3 times 1.2 times Increase Return on Assets 6.3% 6.5% Decrease Earning per share $2.13 $2.10 Increase