Question

Problem 14-4A (Part Level Submission) Financial information for Messersmith Company is presented below MESSERSMITH COMPANY Balance Sheets December 31 Assets Cash Short-term investments Accounts receivable (net) Inventory Prepaid expenses Land Building and equipment (net) 2017 $92,400 68,640 129,360 165,000 38,280 171,600 237,600 $902,880 2016 $85,800 52,800 105,600 178,200 30,360 171,600 231,000 $855,360 Liabilities and Stockholders' Equit Notes payable Accounts payable Accrued liabilities Bonds payable, due 2020 Common stock, $10 par Retained earnings $132,000 55,440 52,800 198,000 264,000 153,120 $855,360 $132,000 63,360 66,000 198,000 264,000 179,520 $902,880 MESSERSMITH COMPANY Income Statement For the Years Ended December 31 2017 2016 $1,122,000 818,400 303,600 246,840 $ 56,760 Net sales Cost of goods sold Gross profit Operating expenses Net income $1,042,800 759,000 283,800 228,360 $55,440 Additional information: 1. Inventory at the beginning of 2016 was $155,760. 2. Total assets at the beginning of 2016 were $831,600 3. No common stock transactions occurred during 2016 or 2017 4. All sales were on account. Accounts receivable, net at the beginning of 2016 were $116,160 5. Notes payable are classified as current liabilities Your answer is partially correct. Try again Indicate, by using ratios, the change in liquidity and profitability of Messersmith Company from 2016 to 2017. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all other answers to 1 decimal place, e.g. 6.8 or 6.8% .) 2016 2017 Change LIQUIDITY Current 1.88 :1 Decrease Acid-test Accounts receivable turnover Inventory turnover PROFITABILITY Profit margin Asset turnover Return on assets Increase times Increase 9.40 times times Increase 4.55 times 5.32 1.24 times 6.57 5.06 Decrease times Increase 6.46 Decrease Earnings per share 2.1 2.15 Increase SHOW SOLUTION LINK TO TEXT By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor. Attempts: 2 of 2 used You have surpassed the number of attempts 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 $66,000. Total assets on December 31, 2018, were $924,000 Round answers to 1 decimal place, e.g. 6.8 or 6.8% .,) Ratio Situation (1) (2) (3) Return on common stockholders equity Debt to assets ratio Price-earnings ratio 23,760 shares of common stock were sold at par on July 1, 2018 paid All of the notes payable were paid in 2018. The only change in liabilities was that the notes payable were Market price of common stock was $12 on December 31, 2017, and $16.90 on December 31, 2018 2017 2018 Change Return on common stockholders' equity Debt to assets Price-earnings ratio times times By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructon Attempts: 0 of 2 used SUBMIT ANSWER SAVE FOR LATER Earn Maximum Points available only if you answer this question correctly in your first attempt.

Answer 1

The ratios will be calculated as:

		2017	2018	Change
Return on Stockholders' Equity	Net Income/Average Total Equity	13.2%	15.1%	Increase
Debt to Assets	Total Debt /Total Assets	1.8	0.2	Decrease
Price-earnings ratio	Market Price/Earnings per share	5.7	12.8	Increase

Working:

Average Equity	(Beginning Total Equity+Ending Total Equity)/2	430320	436920
No. of outstanding shares		26400	50160
Earnings per share		2.15	1.32