Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2006 and 2005 are as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 1999 and $25 on December 31, 2006. Rainbow Paint Co. Comparative Income Statement For the Years Ended December 31, 2006 and 2005       2006     2005 Sales     $ 5,125,000     $ 3,257,600 Sales returns and allowances     125,000     57,600 Net sales     $ 5,000,000     $ 3,200,000 Cost of goods sold     3,400,000     2,080,000 Gross profit     $ 1,600,000     $ 1,120,000 Selling expenses     $ 650,000     $ 464,000 Administrative expenses     325,000     224,000 Total operating expenses     $ 975,000     $ 688,000 Income from operations     $ 625,000     $ 432,000 Other income     25,000     19,200       $ 650,000     $ 451,200 Other expense (interest)     105,000     64,000 Income before income tax     $ 545,000     $ 387,200 Income tax expense     300,000     176,000 Net income     $ 245,000     $ 211,200               Rainbow Paint Co. Comparative Retained Earnings Statement For the Years Ended December 31, 2006 and 2005       2006     2005 Retained earnings, January 1     $ 723,000     $ 581,800 Add net income for year     245,000     211,200 Total     $ 968,000     $ 793,000 Deduct dividends:                  On preferred stock     $ 40,000     $ 40,000      On common stock     45,000     30,000           Total     $ 85,000     $ 70,000 Retained earnings, December 31     $ 883,000     $ 723,000               Rainbow Paint Co. Comparative Balance Sheet December 31, 2006 and 2005 Assets     2000     1999 Current assets:                  Cash     $ 175,000     $ 125,000      Marketable securities     150,000     50,000      Accounts receivable (net)     425,000     325,000      Inventories     720,000     480,000      Prepaid expenses     30,000     20,000           Total current assets     $ 1,500,000     $ 1,000,000 Long-term investments     250,000     225,000 Property, plant, and equipment (net)     2,093,000     1,948,000 Total assets     $ 3,843,000     $ 3,173,000 Liabilities             Current liabilities     $ 750,000     $ 650,000 Long-term liabilities:                  Mortgage note payable, 10%, due 2009     $ 410,000     -      Bonds payable, 8%, due 2012     800,000     $ 800,000           Total long-term liabilities     $ 1,210,000     $ 800,000 Total liabilities     $ 1,960,000     $ 1,450,000 Stockholders' Equity             Preferred 8% stock, $100 par     $ 500,000     $ 500,000 Common stock, $10 par     500,000     500,000 Retained earnings     883,000     723,000      Total stockholders' equity     $ 1,883,000     $ 1,723,000 Total liabilities and stockholders' equity     $ 3,843,000     $ 3,173,000 Instructions Determine the following measures for both 20Y8 and 20Y9, rounding percentages and ratios other than per-share amounts to one decimal place. Briefly explain how or why management would use this information and comment on the trend from 20Y8 and 20Y9.  Price-earnings ratio Dividends per share Dividend yield

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2006 and 2005 are as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 1999 and $25 on December 31, 2006.

Rainbow Paint Co.
Comparative Income Statement
For the Years Ended December 31, 2006 and 2005

      2006     2005
Sales     $ 5,125,000     $ 3,257,600
Sales returns and allowances     125,000     57,600
Net sales     $ 5,000,000     $ 3,200,000
Cost of goods sold     3,400,000     2,080,000
Gross profit     $ 1,600,000     $ 1,120,000
Selling expenses     $ 650,000     $ 464,000
Administrative expenses     325,000     224,000
Total operating expenses     $ 975,000     $ 688,000
Income from operations     $ 625,000     $ 432,000
Other income     25,000     19,200
      $ 650,000     $ 451,200
Other expense (interest)     105,000     64,000
Income before income tax     $ 545,000     $ 387,200
Income tax expense     300,000     176,000
Net income     $ 245,000     $ 211,200
             

Rainbow Paint Co.
Comparative Retained Earnings Statement
For the Years Ended December 31, 2006 and 2005

      2006     2005
Retained earnings, January 1     $ 723,000     $ 581,800
Add net income for year     245,000     211,200
Total     $ 968,000     $ 793,000
Deduct dividends:            
     On preferred stock     $ 40,000     $ 40,000
     On common stock     45,000     30,000
          Total     $ 85,000     $ 70,000
Retained earnings, December 31     $ 883,000     $ 723,000
             

Rainbow Paint Co.
Comparative Balance Sheet
December 31, 2006 and 2005

Assets     2000     1999
Current assets:            
     Cash     $ 175,000     $ 125,000
     Marketable securities     150,000     50,000
     Accounts receivable (net)     425,000     325,000
     Inventories     720,000     480,000
     Prepaid expenses     30,000     20,000
          Total current assets     $ 1,500,000     $ 1,000,000
Long-term investments     250,000     225,000
Property, plant, and equipment (net)     2,093,000     1,948,000
Total assets     $ 3,843,000     $ 3,173,000
Liabilities            
Current liabilities     $ 750,000     $ 650,000
Long-term liabilities:            
     Mortgage note payable, 10%, due 2009     $ 410,000    

-

     Bonds payable, 8%, due 2012     800,000     $ 800,000
          Total long-term liabilities     $ 1,210,000     $ 800,000
Total liabilities     $ 1,960,000     $ 1,450,000
Stockholders' Equity            
Preferred 8% stock, $100 par     $ 500,000     $ 500,000
Common stock, $10 par     500,000     500,000
Retained earnings     883,000     723,000
     Total stockholders' equity     $ 1,883,000     $ 1,723,000
Total liabilities and stockholders' equity     $ 3,843,000     $ 3,173,000


Instructions

  • Determine the following measures for both 20Y8 and 20Y9, rounding percentages and ratios other than per-share amounts to one decimal place. Briefly explain how or why management would use this information and comment on the trend from 20Y8 and 20Y9. 
    • Price-earnings ratio
    • Dividends per share
    • Dividend yield
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