Question

The following financial information is for Priscoll Company.

PRISCOLL COMPANY Balance Sheets December 31
Assets		2017		2016
Cash		$ 70,000		$ 65,000
Debt investments (short-term)		55,000		40,000
Accounts receivable		104,000		90,000
Inventory		230,000		165,000
Prepaid expenses		25,000		23,000
Land		130,000		130,000
Building and equipment (net)		260,000		185,000
Total assets		$874,000		$698,000
Liabilities and Stockholders’ Equity
Notes payable		$170,000		$120,000
Accounts payable		65,000		52,000
Accrued liabilities		40,000		40,000
Bonds payable, due 2017		250,000		170,000
Common stock, $10 par		200,000		200,000
Retained earnings		149,000		116,000
Total liabilities and stockholders’ equity		$874,000		$698,000

PRISCOLL COMPANY Income Statements For the Years Ended December 31
		2017		2016
Sales revenue		$882,000		$790,000
Cost of goods sold		640,000		575,000
Gross profit		242,000		215,000
Operating expenses		190,000		167,000
Net income		$ 52,000		$ 48,000

Additional information:

1.		Inventory at the beginning of 2016 was $115,000.
2.		Accounts receivable (net) at the beginning of 2016 were $86,000.
3.		Total assets at the beginning of 2016 were $660,000.
4.		No common stock transactions occurred during 2016 or 2017.
5.		All sales were on account.

Part 1

Part 1

• Your Answer
• Correct Answer

Partially correct answer iconYour answer is partially correct.

Compute the liquidity and profitability ratios of Priscoll Company for 2016 and 2017. (Round all answers to 2 decimal places, e.g. 1.83 or 1.83%. If % change is a decrease show the numbers as negative, e.g. -1.83% or (1.83%).)

		2016			2017			% Change
LIQUIDITY
Current ratio		Enter a number	:1		Enter a number	:1		Enter percentages	%
Accounts receivables turnover		Enter a number	times		Enter a number	times		Enter percentages	%
Inventory turnover		Enter a number	times		Enter a number	times		Enter percentages	%

		2016			2017			% Change
PROFITABILITY
Profit margin		Enter percentages	%		Enter percentages	%		Enter percentages	%
Asset turnover		Enter a number	times		Enter a number	times		Enter percentages	%
Return on assets		Enter percentages	%		Enter percentages	%		Enter percentages	%
Earnings per share		$Enter a dollar amount			$Enter a dollar amount			Enter percentages	%

eTextbook and Media

Assistance Used

Solution

Assistance Used

Attempts: 3 of 3 used

Part 2

Part 2

Partially correct answer iconYour answer is partially correct.

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, 2017, and (2) as of December 31, 2018, after giving effect to the situation. Net income for 2018 was $54,000. Total assets on December 31, 2018, were $900,000. (Round all answers to 2 decimal places, e.g. 1.83 or 1.83%. If % change is a decrease show the numbers as negative, e.g. -1.83% or (1.83%).)

Situation				Ratio
1.		18,000 shares of common stock were sold at par on July 1, 2018.		Return on common stockholders’ equity
2.		All of the notes payable were paid in 2018.		Debt to assets ratio
3.		The market price of common stock was $9 and $12 on December 31, 2017 and 2018, respectively.		Price-earnings ratio

		2017			2018			% Change
Return on common stockholders’ equity		Enter percentages	%		Enter percentages	%		Enter percentages	%
Debt to assets ratio		Enter percentages	%		Enter percentages	%		Enter percentages	%
Price earnings ratio		Enter a number	times		Enter a number	times		Enter percentages

Answer 1

Part 1:

Liquidity Ratios		2016		2017	% change
Current ratio	(65000+40000+90000+165000+23000)/(120000+52000+40000)	1.810	(70000+55000+104000+230000+25000)/(170000+65000+40000)	1.76	-2.76%
Accounts receivable turnover	79000 / ([86000+90000)/2]	8.98	882000 / [(90000+104000)/2]	9.09	1.22%
Inventory Turnover	575000 / (115000+165000)/2	4.11	64000 / [(165000+230000)/2]	3.24	-21.17%
Profitability Ratios
Profit Margin	48000/790000	6.08%	52000/882000	5.90%	-2.96%
Asset Turnover	79000 / ([660000+698000)/2]	1.16	882000/[(698000+874000)/2]	1.12	-3.45%
Return on assets	48000 / [(660000+698000)/2]	7.07%	52000 / [(698000+874000)/2]	6.62%	-6.36%
Earning per share	48000/200000	2.4	52000 / (200000/10)	2.6	8.33%

Part 2

Return on common stockholders' equity = Net profit after tax / Average shareholders' funds

For 2017 = $52000 / $332500 = 15.64%

For 2018 = $52000 / $286000 = 18.18%

Change is: Increase

Where,Average shareholders' funds for 2018 = (200000+1490000+ 200000+149000+54000-180000)/2 = $286000

Debt Asset Ratio = Total Debt / Total Assets

	2017	2018	Change
Total Debt	$250000	$250000
Total Assets	$874000	$900000
Debt Assets Ratio	28.60%	27.78%	Decrease

Price earning Ratio = Market share price / EPS

	2017	2018	Change
Market Share Price	$9	$12
EPS (Net income/Number of shares outstanding)	$2.6	$2.7
PE Ratio	3.46	4.44	Increase