Problem 18-4A Financial information for Messersmith Company is presented below.
MESSERSMITH COMPANY
Balance Sheets
December 31 |
| Assets |
2017 |
2016 |
| Cash |
mce_markernbsp;78,400 |
mce_markernbsp;72,800 |
| Short-term investments |
58,240 |
44,800 |
Accounts receivable (net)
|
109,760 |
89,600 |
| Inventory |
140,000 |
151,200 |
| Prepaid expenses |
32,480 |
25,760 |
| Land |
145,600 |
145,600 |
| Building and equipment (net) |
201,600 |
196,000 |
| $766,080 |
$725,760 |
| Liabilities and Stockholders' Equity |
| Notes payable |
$112,000 |
$112,000 |
| Accounts payable |
53,760 |
47,040 |
| Accrued liabilities |
56,000 |
44,800 |
| Bonds payable, due 2020 |
168,000 |
168,000 |
| Common stock, $10 par |
224,000 |
224,000 |
| Retained earnings |
152,320 |
129,920 |
| $766,080 |
$725,760 |
MESSERSMITH COMPANY
Income Statement
For the Years Ended December 31 |
| 2017 |
2016 |
| Net sales |
$952,000 |
$884,800 |
| Cost of goods sold |
694,400 |
644,000 |
| Gross profit |
257,600 |
240,800 |
| Operating expenses |
209,440 |
193,760 |
| Net income |
mce_markernbsp;48,160 |
mce_markernbsp;47,040 |
Additional information:
1. Inventory at the beginning of 2016 was $132,160.
2. Total assets at the beginning of 2016 were $705,600.
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 $98,560.
5. Notes payable are classified as current liabilities.
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% .)
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 $56,000. Total assets on December 31, 2018, were $784,000. (Round answers to 1 decimal place, e.g. 6.8 or 6.8% .)