Question

1.

Use this information for Kellman Company to answer the question that follow. The balance sheets at the end of each of the first two years of operations indicate the following: Kellman Company Total current assets Total investments Total property, plant, and equipment Total current liabilities Total long-term liabilities Preferred 9% stock, $100 par Common stock, $10 par Paid in capital in excess of par-Common stock Retained earnings Year 2 $600,000 60,000 900,000 125,000 350,000 100,000 600,000 75,000 310,000 Year 1 $560,000 40,000 700,000 65,000 250,000 100,000 600,000 75,000 210,000 Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $20,000 for Year 2, and the market price of common shares is $30, what is the price-earnings ratio on common stock for Year 2? (Round intermediate calculation to two decimal places and final answers to one decimal place.) 3. 7.5 b. 13.4 6.12.1 d. 8.5

2.

3.

4.

5.

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Answer 1
Kellman company	Amount $	Note
Common Stock	600,000.00	A
Par value	10.00	B
Number of shares	60,000.00	C=A/B
Net Income	250,000.00	D
Less: Preference Dividend	9,000.00	E
(9% of 100,000)
Net Income common for shareholders	241,000.00	F=D-E
Earnings per share	4.02	G=F/C
Market price of common share	30.00	H
Price Earning Ratio	7.50	I=H/G

Market price of common share/ Earnings per share

So answer is option a.

Answer 2
Carmen company
Income Statement	Amount $
Sales	1,300,000.00
Net Income	250,000.00
Balance Sheets
Total Assets	2,000,000.00
Average assets	2,200,000.00
Average Common Stock holders Equity	1,000,000.00
Average Common Stock holders Equity
Shares of common stock outstanding	10,000.00
Ratio
Assets Turnover Ratio	0.6
Sales Revenue/Average Assets
Return on Total Assets	12.5%
Net Income/Total Assets
Return on Common Stock holders Equity	130.0%
Net Income/Average Common Stock holders Equity
Earnings per share	25.0
Net Income/Shares of common stock outstanding

Answer 3
Income Statement	Current	Preceding
Net Income	110,000.00	155,000.00
Less: Preference Dividend	25,000.00	25,000.00
Net Income for common for shareholders	85,000.00	130,000.00
Balance Sheets
Assets	Current	Preceding
Current Assets	745,000.00	820,000.00
Property, Plant and Equipment	1,510,000.00	1,400,000.00
Total Assets	2,255,000.00	2,220,000.00
Liabilities & Stockholders' Equity	Current	Preceding
Current Liabilities	160,000.00	140,000.00
Long Term Liabilities	400,000.00	400,000.00
Total Liabilities	560,000.00	540,000.00
Common Stock	1,200,000.00	1,200,000.00
Preferred Stock	250,000.00	250,000.00
Retained Earnings	230,000.00	160,000.00
Total Stockholders' Equity	1,680,000.00	1,610,000.00

	Current
Common Stock	1,200,000.00
Par value	10.00
Number of shares	120,000.00
Common Dividend	70,000.00
Dividend Per share	0.58
Common Stock	1,200,000.00
Retained Earnings	230,000.00
Total Common Stockholders' Equity	1,430,000.00
Answer a	Current
Return on Total Assets	4.9%
Net Income/Total Assets
Answer b
Return on Stock holders Equity	6.5%
Net Income/Stock holders Equity
Answer c
Return on Common Stock holders Equity	5.9%
Net Income for common for shareholders/Common Stock holders Equity
Answer d
Earnings per share	0.7
Net Income for common for shareholders/Number of shares
Answer e
Price Earnings Ratio	35.3
Market Price Per Share/ Earnings Per share on Common Stock
Answer f
Dividend Yield	2.3%
Dividend Per share on Common Stock/ Market Price Per Share

Answer 4	Amount $
Opening Accounts Receivable	42,726.00
Ending Accounts Receivable	47,669.00
Average Receivable	45,197.50
Sales on account	550,112.00
Accounts Receivables Turnover	12.17
Net Sales / Average Receivable
Number of days sales in receivable	30.00
365/Accounts Receivables Turnover
So answer is option c.

Answer 5
Year	Amount $	Amount $
Particulars
Net Income		231,290.00
Adjustment to reconcile Net Income to Net Cash
Add:
Depreciation & Amortization Expense		21,208.00
Loss on sale of equipment		6,472.00
Cash flow from Operations		258,970.00
Changes in Current Assets/Current Liabilities
Increase in Accounts Receivable	(16,015.00)
Increase in Inventory	(31,068.00)
Decrease in Prepaid Assets	2,889.00
Decrease in Accounts Payable	(7,357.00)
Decrease in Taxes Payable	-	(51,551.00)
Net cash provided by operating activities		207,419.00
So answer is option b.