The comparative financial statements of Marshall Inc. are as follows. The market
ID: 2520085 • Letter: T
Question
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
working capital
Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
Explanation / Answer
1. Working capital = current assets (-) current liabilities = 2454000 - 821000 = 1633000
2. Current ratio = current assets / current liabilities = 2454000 / 821000 = 2.99 = 3.0
3. Quick ratio = [current assets - inventories] / current liabilities = [2454000 - 410000] / 821000 = 2.5
4. Accounts receivable turnover = net credit sales / average AR = 10860000 / [(586000+500000)/2] = 20
5. Number of days' sales in receivables=accounts receivables / [total sales / number of days in a year] = 586000 / [10860000/365] = 19.7
6. Inventory turnover ratio = cost of goods sold / average inventory = 6000000 / [(410000+380000)/2] = 15.2
7. Number of days' sales in inventory = no. of days in a year / inventory turnover ratio = 365 / 15.2 = 24
8. Ratio of fixed assets to long term liabilities = total fixed assets / total long term liabilities = 5750000 / 3200000 = 1.8
9. Ratio of liabilities to stockholders equity (total liability approach) = total liability / total stockholders equity = 4021000 / 4983000 = 0.8
10. Times interest earned = EBIT / interest expense = 1172000 / 131000 = 8.9
11. Asset turnover = net sales / average total assets = 10860000 / [(9004000+8254000)/2] = 1.3
12. Return of total assets = net profit after tax / average total assets x 100 = 631000 / [(9004000+8254000)/2] x 100 = 7.3%
13. Return on stockholders equity = net profit after tax / average total shareholders equity x 100 = 631000 / [(4983000+4462000)/2] x 100 = 13.4%
14. Return on common stock holders equity =(net profit after tax - preference dividend) / average common stockholders equity x 100 = (631000-10000) / [(4733000+4212000)/2)] x 100 = 13.9%
15. Earning per share on common stock = net profit available to equity share holders / number of common stock outstanding = (631000-10000) / 500000 = 1.2
16. Price earning ratio = market price per share / earnings per share = 82.4 / 1.2 = 68.7
17. Dividend per share of common stock = divident paid to common stockholders / number of common stock outstanding = 100000 / 500000 = 0.2
18. Dividend yield = dividends per share / market value per share x 100 = (100000/500000) / 82.4 x 100 = 0.24%