Problem
Given the financial statements for Jones Corporation and Smith Corporation:
|
JONES CORPORATION
|
|
Current Assets
|
Liabilities
|
|
Cash
|
$
|
29,700
|
Accounts payable
|
$
|
166,000
|
|
Accounts receivable
|
|
88,500
|
Bonds payable (long term)
|
|
82,100
|
|
Inventory
|
|
51,300
|
|
|
|
|
Long-Term Assets
|
Stockholders' Equity
|
|
Fixed assets
|
$
|
542,000
|
Common stock
|
$
|
150,000
|
|
Less: Accumulated depreciation
|
|
(154,700)
|
Paid-in capital
|
|
70,000
|
|
Net fixed assets*
|
|
387,300
|
Retained earnings
|
|
88,700
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
556,800
|
Total liabilities and equity
|
$
|
556,800
|
|
|
|
|
|
|
|
|
|
|
|
Sales (on credit)
|
$
|
1,914,000
|
|
Cost of goods sold
|
|
771,000
|
|
|
|
|
|
Gross profit
|
|
1,143,000
|
|
Selling and administrative expense†
|
|
325,000
|
|
Less: Depreciation expense
|
|
59,600
|
|
|
|
|
|
Operating profit
|
|
758,400
|
|
Interest expense
|
|
9,200
|
|
|
|
|
|
Earnings before taxes
|
|
749,200
|
|
Tax expense
|
|
102,300
|
|
|
|
|
|
Net income
|
$
|
646,900
|
|
|
|
|
| |
*Use net fixed assets in computing fixed asset turnover.
†Includes $7,900 in lease payments.
|
SMITH CORPORATION
|
|
Current Assets
|
Liabilities
|
|
Cash
|
$
|
39,800
|
Accounts payable
|
$
|
76,500
|
|
Marketable securities
|
|
12,200
|
Bonds payable (long term)
|
|
225,000
|
|
Accounts receivable
|
|
74,600
|
|
|
|
|
Inventory
|
|
77,700
|
|
|
|
|
Long-Term Assets
|
Stockholders' Equity
|
|
Fixed assets
|
$
|
509,000
|
Common stock
|
$
|
75,000
|
|
Less: Accumulated depreciation
|
|
(252,600)
|
Paid-in capital
|
|
30,000
|
|
Net fixed assets*
|
|
256,400
|
Retained earnings
|
|
54,200
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
460,700
|
Total liabilities and equity
|
$
|
460,700
|
|
|
|
|
|
|
|
|
*Use net fixed assets in computing fixed asset turnover.
|
SMITH CORPORATION
|
|
Sales (on credit)
|
$
|
1,150,000
|
|
Cost of goods sold
|
|
687,000
|
|
|
|
|
|
Gross profit
|
|
463,000
|
|
Selling and administrative expense†
|
|
281,000
|
|
Less: Depreciation expense
|
|
59,200
|
|
|
|
|
|
Operating profit
|
|
122,800
|
|
Interest expense
|
|
27,100
|
|
|
|
|
|
Earnings before taxes
|
|
95,700
|
|
Tax expense
|
|
54,200
|
|
|
|
|
|
Net income
|
$
|
41,500
|
|
|
|
|
|
Includes $7,900 in lease payments.
(a-1) Compute the following ratios.
(a-2) To which one would you, as credit manager for a supplier, approve the extension of (short-term) trade credit?
(b) In which one would you buy stocks?