The comparative financial statements of Marshall Inc. are as follows. The market
ID: 2542294 • Letter: T
Question
The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 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
$3,704,000.00
$3,264,000.00
3
Net income
600,000.00
550,000.00
4
Total
$4,304,000.00
$3,814,000.00
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
$4,194,000.00
$3,704,000.00
Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
1
20Y2
20Y1
2
Sales
$10,850,000.00
$10,000,000.00
3
Cost of goods sold
6,000,000.00
5,450,000.00
4
Gross profit
$4,850,000.00
$4,550,000.00
5
Selling expenses
$2,170,000.00
$2,000,000.00
6
Administrative expenses
1,627,500.00
1,500,000.00
7
Total operating expenses
$3,797,500.00
$3,500,000.00
8
Income from operations
$1,052,500.00
$1,050,000.00
9
Other revenue
99,500.00
20,000.00
10
$1,152,000.00
$1,070,000.00
11
Other expense (interest)
132,000.00
120,000.00
12
Income before income tax
$1,020,000.00
$950,000.00
13
Income tax expense
420,000.00
400,000.00
14
Net income
$600,000.00
$550,000.00
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)
585,000.00
500,000.00
7
Inventories
420,000.00
380,000.00
8
Prepaid expenses
108,000.00
20,000.00
9
Total current assets
$2,464,000.00
$2,270,000.00
10
Long-term investments
800,000.00
800,000.00
11
Property, plant, and equipment (net)
5,760,000.00
5,184,000.00
12
Total assets
$9,024,000.00
$8,254,000.00
13
Liabilities
14
Current liabilities
$880,000.00
$800,000.00
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
$4,080,000.00
$3,800,000.00
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
4,194,000.00
3,704,000.00
24
Total stockholders’ equity
$4,944,000.00
$4,454,000.00
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):
Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
Explanation / Answer
CALCULATION ANSWER 1 Working capital = 2464000-880000 = 1584000 2 Current ratio =2464000/880000 = 2.8 3 Quick ratio = (1050000+301000+585000)/880000 = 2.2 4 Accounts receivable turnover = 10850000*2/(585000+500000) = 20.0 5 Number of days’ sales in receivables = 365/20 = 18.3 6 Inventory turnover = 6000000*2/(420000+380000) = 15.0 7 Number of days’ sales in inventory = 365/15 = 24.3 8 Ratio of fixed assets to long-term liabilities = 5760000/3200000 = 1.8 9 Ratio of liabilities to stockholders’ equity = 4080000/4944000 = 0.8 10 Times interest earned = 1052500/132000 = 8.0 11 Asset turnover = 10850000*2/(9024000+8254000) = 1.3 12 Return on total assets = 600000*2/(9024000+8254000) = 6.9% 13 Return on stockholders’ equity = 600000*2/(4944000+4454000) = 12.8% 14 Return on common stockholders’ equity = (600000-10000)*2/(500000+4194000+500000+3704000) = 13.3% 15 Earnings per share on common stock = 590000/100000 = $ 5.90 16 Price-earnings ratio = 82.60/5.9 = 14.0 17 Dividends per share of common stock = 100000/100000 = $ 1.00 18 Dividend yield = 1/82.6 = 1.2%