The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 on December 31, 20Y2. Marshall Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Retained earnings, January 1 $3,712,000.00 $3,262,000.00 3 Net income 589,000.00 560,000.00 4 Total $4,301,000.00 $3,822,000.00 5 Dividends: 6 On preferred stock $10,000.00 $10,000.00 7 On common stock 100,000.00 100,000.00 8 Total dividends $110,000.00 $110,000.00 9 Retained earnings, December 31 $4,191,000.00 $3,712,000.00 Marshall Inc. Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Sales $10,840,000.00 $10,000,000.00 3 Cost of goods sold 6,000,000.00 5,440,000.00 4 Gross profit $4,840,000.00 $4,560,000.00 5 Selling expenses $2,180,000.00 $2,000,000.00 6 Administrative expenses 1,627,500.00 1,500,000.00 7 Total operating expenses $3,807,500.00 $3,500,000.00 8 Income from operations $1,032,500.00 $1,060,000.00 9 Other income 99,500.00 20,000.00 10 $1,132,000.00 $1,080,000.00 11 Other expense (interest) 133,000.00 120,000.00 12 Income before income tax $999,000.00 $960,000.00 13 Income tax expense 410,000.00 400,000.00 14 Net income $589,000.00 $560,000.00 Marshall Inc. Comparative Balance Sheet December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Assets 3 Current assets: 4 Cash $1,050,000.00 $950,000.00 5 Marketable securities 301,000.00 420,000.00 6 Accounts receivable (net) 584,000.00 500,000.00 7 Inventories 410,000.00 380,000.00 8 Prepaid expenses 109,000.00 20,000.00 9 Total current assets $2,454,000.00 $2,270,000.00 10 Long-term investments 800,000.00 800,000.00 11 Property, plant, and equipment (net) 5,750,000.00 5,184,000.00 12 Total assets $9,004,000.00 $8,254,000.00 13 Liabilities 14 Current liabilities $863,000.00 $792,000.00 15 Long-term liabilities: 16 Mortgage note payable, 6%, $200,000.00 $0.00 17 Bonds payable, 4%, 3,000,000.00 3,000,000.00 18 Total long-term liabilities $3,200,000.00 $3,000,000.00 19 Total liabilities $4,063,000.00 $3,792,000.00 20 Stockholders’ Equity 21 Preferred 4% stock, $5 par $250,000.00 $250,000.00 22 Common stock, $5 par 500,000.00 500,000.00 23 Retained earnings 4,191,000.00 3,712,000.00 24 Total stockholders’ equity $4,941,000.00 $4,462,000.00 25 Total liabilities and stockholders’ equity $9,004,000.00 $8,254,000.00 Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year. 1. Working capital 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Number of days’ sales in receivables 6. Inventory turnover 7. Number of days’ sales in inventory 8. Ratio of fixed assets to long-term liabilities 9. Ratio of liabilities to stockholders’ equity 10. Times interest earned 11. Asset turnover 12. Return on total assets 13. Return on stockholders’ equity 14. Return on common stockholders’ equity 15. Earnings per share on common stock 16. Price-earnings ratio 17. Dividends per share of common stock 18. Dividend yield
The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 on December 31, 20Y2. Marshall Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Retained earnings, January 1 $3,712,000.00 $3,262,000.00 3 Net income 589,000.00 560,000.00 4 Total $4,301,000.00 $3,822,000.00 5 Dividends: 6 On preferred stock $10,000.00 $10,000.00 7 On common stock 100,000.00 100,000.00 8 Total dividends $110,000.00 $110,000.00 9 Retained earnings, December 31 $4,191,000.00 $3,712,000.00 Marshall Inc. Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Sales $10,840,000.00 $10,000,000.00 3 Cost of goods sold 6,000,000.00 5,440,000.00 4 Gross profit $4,840,000.00 $4,560,000.00 5 Selling expenses $2,180,000.00 $2,000,000.00 6 Administrative expenses 1,627,500.00 1,500,000.00 7 Total operating expenses $3,807,500.00 $3,500,000.00 8 Income from operations $1,032,500.00 $1,060,000.00 9 Other income 99,500.00 20,000.00 10 $1,132,000.00 $1,080,000.00 11 Other expense (interest) 133,000.00 120,000.00 12 Income before income tax $999,000.00 $960,000.00 13 Income tax expense 410,000.00 400,000.00 14 Net income $589,000.00 $560,000.00 Marshall Inc. Comparative Balance Sheet December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Assets 3 Current assets: 4 Cash $1,050,000.00 $950,000.00 5 Marketable securities 301,000.00 420,000.00 6 Accounts receivable (net) 584,000.00 500,000.00 7 Inventories 410,000.00 380,000.00 8 Prepaid expenses 109,000.00 20,000.00 9 Total current assets $2,454,000.00 $2,270,000.00 10 Long-term investments 800,000.00 800,000.00 11 Property, plant, and equipment (net) 5,750,000.00 5,184,000.00 12 Total assets $9,004,000.00 $8,254,000.00 13 Liabilities 14 Current liabilities $863,000.00 $792,000.00 15 Long-term liabilities: 16 Mortgage note payable, 6%, $200,000.00 $0.00 17 Bonds payable, 4%, 3,000,000.00 3,000,000.00 18 Total long-term liabilities $3,200,000.00 $3,000,000.00 19 Total liabilities $4,063,000.00 $3,792,000.00 20 Stockholders’ Equity 21 Preferred 4% stock, $5 par $250,000.00 $250,000.00 22 Common stock, $5 par 500,000.00 500,000.00 23 Retained earnings 4,191,000.00 3,712,000.00 24 Total stockholders’ equity $4,941,000.00 $4,462,000.00 25 Total liabilities and stockholders’ equity $9,004,000.00 $8,254,000.00 Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year. 1. Working capital 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Number of days’ sales in receivables 6. Inventory turnover 7. Number of days’ sales in inventory 8. Ratio of fixed assets to long-term liabilities 9. Ratio of liabilities to stockholders’ equity 10. Times interest earned 11. Asset turnover 12. Return on total assets 13. Return on stockholders’ equity 14. Return on common stockholders’ equity 15. Earnings per share on common stock 16. Price-earnings ratio 17. Dividends per share of common stock 18. Dividend yield
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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Question
The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 on December 31, 20Y2.
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Marshall Inc.
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Comparative
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For the Years Ended December 31, 20Y2 and 20Y1
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1
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20Y2
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20Y1
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2
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Retained earnings, January 1
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$3,712,000.00
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$3,262,000.00
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3
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Net income
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589,000.00
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560,000.00
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4
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Total
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$4,301,000.00
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$3,822,000.00
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|
5
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Dividends:
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|
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6
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On
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$10,000.00
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$10,000.00
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7
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On common stock
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100,000.00
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100,000.00
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8
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Total dividends
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$110,000.00
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$110,000.00
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9
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Retained earnings, December 31
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$4,191,000.00
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$3,712,000.00
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Marshall Inc.
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Comparative Income Statement
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For the Years Ended December 31, 20Y2 and 20Y1
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1
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20Y2
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20Y1
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2
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Sales
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$10,840,000.00
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$10,000,000.00
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3
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Cost of goods sold
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6,000,000.00
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5,440,000.00
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4
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Gross profit
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$4,840,000.00
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$4,560,000.00
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5
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Selling expenses
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$2,180,000.00
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$2,000,000.00
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6
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Administrative expenses
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1,627,500.00
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1,500,000.00
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7
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Total operating expenses
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$3,807,500.00
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$3,500,000.00
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8
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Income from operations
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$1,032,500.00
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$1,060,000.00
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9
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Other income
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99,500.00
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20,000.00
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10
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$1,132,000.00
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$1,080,000.00
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11
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Other expense (interest)
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133,000.00
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120,000.00
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12
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Income before income tax
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$999,000.00
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$960,000.00
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13
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Income tax expense
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410,000.00
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400,000.00
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14
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Net income
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$589,000.00
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$560,000.00
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Marshall Inc.
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Comparative
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December 31, 20Y2 and 20Y1
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1
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20Y2
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20Y1
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2
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Assets
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3
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Current assets:
|
|
|
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4
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Cash
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$1,050,000.00
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$950,000.00
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5
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Marketable securities
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301,000.00
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420,000.00
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6
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584,000.00
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500,000.00
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7
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Inventories
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410,000.00
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380,000.00
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8
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Prepaid expenses
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109,000.00
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20,000.00
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9
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Total current assets
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$2,454,000.00
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$2,270,000.00
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10
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Long-term investments
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800,000.00
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800,000.00
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11
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Property, plant, and equipment (net)
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5,750,000.00
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5,184,000.00
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12
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Total assets
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$9,004,000.00
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$8,254,000.00
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13
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Liabilities
|
|
|
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14
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Current liabilities
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$863,000.00
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$792,000.00
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15
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Long-term liabilities:
|
|
|
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16
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Mortgage note payable, 6%,
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$200,000.00
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$0.00
|
|
17
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Bonds payable, 4%,
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3,000,000.00
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3,000,000.00
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18
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Total long-term liabilities
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$3,200,000.00
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$3,000,000.00
|
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19
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Total liabilities
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$4,063,000.00
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$3,792,000.00
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|
20
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|
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21
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Preferred 4% stock, $5 par
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$250,000.00
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$250,000.00
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22
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Common stock, $5 par
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500,000.00
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500,000.00
|
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23
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Retained earnings
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4,191,000.00
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3,712,000.00
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|
24
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Total stockholders’ equity
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$4,941,000.00
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$4,462,000.00
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25
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Total liabilities and stockholders’ equity
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$9,004,000.00
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$8,254,000.00
|
Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year.
| 1. | |
| 2. | |
| 3. | Quick ratio |
| 4. | Accounts receivable turnover |
| 5. | Number of days’ sales in receivables |
| 6. | Inventory turnover |
| 7. | Number of days’ sales in inventory |
| 8. | Ratio of fixed assets to long-term liabilities |
| 9. | Ratio of liabilities to stockholders’ equity |
| 10. | Times interest earned |
| 11. | Asset turnover |
| 12. | Return on total assets |
| 13. | Return on stockholders’ equity |
| 14. | Return on common stockholders’ equity |
| 15. | Earnings per share on common stock |
| 16. | Price-earnings ratio |
| 17. | Dividends per share of common stock |
| 18. | Dividend yield |
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