Question

Problem 13-04A a1.b (Video) The following financial information is for Cullumber Company. Cullumber Company Balance Sheets December 31 Assets 2020 Cash $ 70,000 Debt investments (short-term) 53,000 Accounts receivable 108,000 Inventory 229,000 Prepaid expenses 30,000 Land 130,000 Building and equipment (net) 264,000 Total assets $884,000 Liabilities and Stockholders' Equity Notes payable $172,000 Accounts payable 65,000 Accrued liabilities 41,000 Bonds payable, due 2023 250,000 Common stock, $10 par 202,000 Retained earnings 154,000 Total liabilities and stockholders' equity $884,000 2019 $ 64,000 39,000 90,000 162,000 25,000 130,000 185,000 $695,000 $102,000 51,000 41,000 172,000 202,000 127,000 $695,000

Answer 1

Compute the liquidity and profitability ratio as follows: B DE F 2020 1 2019 2 Liquidity 3 Current ratio 4 Accounts receivable turnover 5 Inventory turnover 1.96:1 8.73 times 4.14 times 1.76:1 8.99 times 3.28 times 7 Profitability 8 Profit margin 9 Asset turnover 10 Return on assets 11 Earnings per share 6.62 % 1.18 times 7.78% $2.575 6.18 % 1.13 times 6.97% $2.72 2019 2020 2 Liquidity 3 Current ratio 4 Accounts receivable turnover 5 Inventory turnover =K14/K19 =K3/((K10+L10)/2) =K4/((K11+L11)/2) times times =J14/019 1=33/((J10+K10)/2) =34/((J11+K11)2) 7 Profitability 8 Profit margin 9 Asset turnover 10 Return on assets 11 Earnings per share =(K5/K3)*100 =K3/((K7+L7)/2) times =(K5/((K7+L7)2))*100% =K5 (202000/10) S =(J5/J3)*100 =J3/((J7+K7)/2) times =(J5/((J7+K7)/2))*100% =J5/(202000/10) s

Working note: 2019 beginning 2020 2019 $890,000 $786,000 $641,000 $575,000 $55,000 $52,000 $356,000 $329,000 S884.000 $695,000 $202,000 $642.000 $90,000 $116,000 3 Sales (all credit) 4 Cost of goods sold 5 Net income 6 Total equity 7 Total Assets 8 Current assets: 9 Cash 10 Accounts receivables 11 Inventory 12 Debt investments (short-term) 13 Prepaid expenses 14 Total current assets 15 Current liabilities: 16 Notes payable 17 Accounts payable 18 Accrued liabilities 19 Total current liabilities 20 Average assets 21 Average receivables 22 Average inventory 23 Average equity $70,000 $64.000 $108,000 $90,000 $229,000 $162,000 $53,000 $39,000 $30,000 $25,000 $490,000 $380,000 $172,000 $102,000 $65,000 $51,000 $41,000 $41,000 S278,000 $194.000 S789,500 5668,500 $198,000 $180,000 $195,500 $139,000 $342,500 $265,500

2020 2019 2019 beginning 3 Sales (all credit) 890000 786000 4 Cost of goods sold 641000 575000 5 Net income 55000 52000 6 Total equity 356000 329000 202000 7 Total Assets 884000 695000 642000 8 Current assets: 9 Cash 70000 64000 10 Accounts receivables 108000 90000 90000 11 Inventory 229000 162000 116000 12 Debt investments (short-term) 53000 39000 13 Prepaid expenses 30000 25000 14 Total current assets =SUM(J9-J13) =SUM(K9:K13) 15 Current liabilities: 16 Notes payable 172000 102000 17 Accounts payable 65000 51000 18 Accrued liabilities 41000 41000 19 Total current liabilities =SUM(J16:J18) =SUM(K16:K18) 20 Average assets =(J7+K7)/2 =(K7+L7)/2 21 Average receivables =(J10+K10) =(K10+L10) 22 Average inventory =(J11+K11)2 =(K11+L11)/2 23 Average equity =(J6+K62 =(K6+L6)/2 b. Compute the ratios as follows: N 2 Return on common 3 Debt to assets ratio 4 Price earnings ratio O 2020 16.06 31.45 3.31 P 2021 11.88 11.73 9.37 % Change -26.00 -62.71 183.47 2020 2021 2 Return on common stockholders' equity =(JS/((16+K6)2))*100 =$3000/(((180000+356000+J6)/2))*100 3 Debt to assets ratio =((J16+J17+J18) J7)*100 =((J17+J18)/904000)*100 4 Price earnings ratio =9/F11 =13/(53000/(18000+20200)) % Change =((P2-02)02)*100 =((P3-03)03)*100 ={(P4-04)04)*100

Answer 2

	2020	%	2021	%	% Change
Return on Common Stockholders' Equity:
Net Income (a)	$55,000		$53,000
Common Stockholders' Equity ($202,000 + $154,000); [$202,000 - (18,000 shares * $10)] (b)	$356,000		$382,000
Return on Common Stockholders' Equity (a/b)	15.45	%	13.87	%	1.58	%
Debt to assets ratio:
Notes Payable	$172,000		-
Accounts Payable	$65,000		$65,000
Accrued Liabilities	$41,000		$41,000
Bonds Payable, due 2023	$250,000		$250,000
Total Liabilities (a)	$528,000		$356,000
Total Assets (b)	$884,000		$904,000
Debt to assets ratio (a/b)	59.73	%	39.38	%	20.35	%
Pricing earnings ratio:
Net Income (a)	$55,000		$53,000
Number of common shares ($202,000/$10 = 20,200 shares); (20,200 + 18,000) (b)	20,200		38,200
Earnings Per Share (c = a/b)	$2.72		$1.39
Market Price Per Share (d)	$9		$13
Pricing earnings ratio (d/c)	3.31	Times	9.37	Times	283	%