The comparative financial statements of Marshall Inc. are as follows. The market
ID: 2577909 • Letter: T
Question
The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 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
589,000.00
560,000.00
4
Total
$4,301,000.00
$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
$4,191,000.00
$3,712,000.00
Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
1
20Y2
20Y1
2
Sales
$10,840,000.00
$10,000,000.00
3
Cost of goods sold
6,000,000.00
5,440,000.00
4
Gross profit
$4,840,000.00
$4,560,000.00
5
Selling expenses
$2,180,000.00
$2,000,000.00
6
Administrative expenses
1,627,500.00
1,500,000.00
7
Total operating expenses
$3,807,500.00
$3,500,000.00
8
Income from operations
$1,032,500.00
$1,060,000.00
9
Other income
99,500.00
20,000.00
10
$1,132,000.00
$1,080,000.00
11
Other expense (interest)
133,000.00
120,000.00
12
Income before income tax
$999,000.00
$960,000.00
13
Income tax expense
410,000.00
400,000.00
14
Net income
$589,000.00
$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)
584,000.00
500,000.00
7
Inventories
410,000.00
380,000.00
8
Prepaid expenses
109,000.00
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
$863,000.00
$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
$4,063,000.00
$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
4,191,000.00
3,712,000.00
24
Total stockholders’ equity
$4,941,000.00
$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.
Asset turnover
Return on total assets
Return on common stockholders' equity
Earnings per share on common stock
Price-earnings ratio
Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
Explanation / Answer
*) Asset tutn over ratio = Sales ÷ average total assets
sales =10840000
average total assets = total assets of 20Y1 +total assets of 20Y2÷2
=9004000+8254000÷2=8629000
=10840000÷8629000=1.26
*) Return on total assets = net income ÷ average total assets
net income =589000
average total assets =8629000
=589000÷8629000=.0682
*) return on common share holders equity = net income ÷ equity shares outstanding
net income =589000
equity shares outstanding = 500000÷5=100000
=589000÷100000=5.89
*)Earnings per share of common equity = earnings to common share holders ÷ common shares outstanding
earnings to common share holders = 100000
common shares outstanding = 100000
=100000÷100000=1
*)price - earnings ratio = market price of stock ÷ earnings per shares (EPS)
Market price of share =82.80
EPS = 1
=82.80÷1=82.8