Problem 14-4A Financial information for Ernie Bishop Company is presented below.
ID: 2649681 • 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
ERNIE BISHOP COMPANY
Balance Sheets
December 31
Assets
2013
2012
Cash $ 114,800 $ 106,600 Short-term investments 85,280 65,600 Receivables (net) 160,720 131,200 Inventory 205,000 221,400 Prepaid expenses 47,560 37,720 Land 213,200 213,200 Building and equipment (net) 275,520 287,000 $1,102,080 $1,062,720Liabilities and Stockholders
Explanation / Answer
The question is very long, I have tried to provide as much details as I can. It is not practically possible to solve all the ratios individually for both the parts for both the years. The formulas with answers have therefore been provided.
____________________
Part A)
The formulas for calculating various ratio have been provided below:
Current Ratio = Current Assets/Current Liabilties where current assets include cash, accounts receivables, short term investments, inventory and prepaid expenses
and current liabilities include notes payable, accounts payable and accrued liabilities
________
Acid-Test Ratio = Quick Assets/Current Liabilties where quick assets is current assets excluding inventory and prepaid expenses.
________
Receivables Turnover Ratio = Net Sales/(Opening Accounts Receivables + Closing Accounts Receivables)/2
________
Inventory Turnover Ratio = Cost of Goods Sold/(Opening Inventory + Closing Inventory)/2
________
Profit Margin Ratio = Net Profit/Net Sales*100
________
Asset Turnover Ratio = Sales/(Opening Total Assets + Closing Total Assets)
________
Return on Assets = Net Income/(Opening Total Assets + Closing Total Assets)/2*100
________
Earnings Per Share = Net Income/Common Stock Outstanding
_______________________
Using the information provided in the question, we get the following table
_______________________
Part b)
The formula for calculating various ratios have been mentioned below:
Return on Common Stockholders
LIQUIDITY 2012 2013 Change Current 1.9:! 1.9:1 No Change Acid-test 1:1 1.1:1 Increase Receivables turnover 9.5 times 9.6 times Increase Inventory turnover 4.5 times 4.7 times Increase PROFITABILITY Profit margin 5.3% 5.0% Decrease Asset turnover 1.2 times 1.3 times Increase Return on assets 6.6% 6.4% Decrease Earnings per share $2.10 $2.13 Increase