Rainbow Paint Co.'s comparative financial statements for the years ending December 31, 2008 and 2007, are as follows. The market price of Rainbow Paint Co.'s common stock was $30 on December 31, 2007, and $25 on December 31, 2008.
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Rainbow Paint Co.
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Comparative Income Statement
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For the Years Ended December 31, 2008 and 2007
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2008
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2007
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Sales
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$5,125,000
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$3,257,600
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Sales returns and allowances
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125,000
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57,600
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Net sales
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$5,000,000
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$3,200,000
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Cost of goods sold
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3,400,000
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2,080,000
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Gross profit
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$1,600,000
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$1,120,000
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Selling expenses
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$ 650,000
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$ 464,000
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Administrative expenses
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325,000
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224,000
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Total operating expenses
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$ 975,000
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$ 688,000
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Income from operations
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$ 625,000
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$ 432,000
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Other income
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25,000
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19,200
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$ 650,000
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$ 451,200
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Other expense (interest)
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105,000
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64,000
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Income before income tax
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$ 545,000
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$ 387,200
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Income tax expense
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300,000
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176,000
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Net income
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$ 245,000
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$ 211,200
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Rainbow Paint Co.
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Comparative Retained Earnings Statement
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For the Years Ended December 31, 2008 and 2007
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2008
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2007
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Retained earnings, January 1
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$723,000
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$581,800
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Add net income for year
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245,000
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211,200
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Total
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$968,000
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$793,000
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Deduct dividends:
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On preferred stock
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$ 40,000
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$ 40,000
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On common stock
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45,000
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30,000
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Total
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$ 85,000
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$ 70,000
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Retained earnings, December 31
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$883,000
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$723,000
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Rainbow Paint Co.
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Comparative Balance Sheet
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December 31, 2008 and 2007
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2008
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2007
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Assets
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Current assets:
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Cash
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$ 175,000
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$ 125,000
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Marketable securities
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150,000
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50,000
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Accounts receivable (net)
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425,000
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325,000
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Inventories
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720,000
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480,000
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Prepaid expenses
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30,000
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20,000
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Total current assets
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$1,500,000
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$1,000,000
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Long-term investments.
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250,000
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225,000
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Property, plant, and equipment (net)
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2,093,000
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1,948,000
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Total assets
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$3,843,000
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$3,173,000
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Liabilities
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Current liabilities
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$750,000
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$650,000
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Long-term liabilities:
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Mortgage note payable, 10%, due 2011
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$410,000
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_
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Bonds payable, 8%, due 2014
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800,000
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$800,000
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Total long-term liabilities
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$1,210,000
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$800,000
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Total liabilities
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$1,960,000
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$1,450,000
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Stockholders' Equity
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Preferred 8% stock, $100 par
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$500,000
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$500,000
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Common stock, $10 par
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500,000
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500,000
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Retained earnings
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883,000
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723,000
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Total stockholders' equity
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$1,883,000
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$1,723,000
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Total liabilities and stockholders' equity
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$3,843,000
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$3,173,000
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Instructions
Determine the following measures for 2008:
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. Number of times interest charges earned
11. Number of times preferred dividends earned
12. Ratio of net sales to assets
13. Rate earned on total assets
14. Rate earned on stockholders' equity
15. Rate earned on common stockholders' equity
16. Earnings per share on common stock
17. Price-earnings ratio
18. Dividends per share of common stock
19. Dividend yield