The Lester Lester Fredrick corporation has in recent years maintained the following relationship among the data on its financial statement :
1. Gross profit rate on net sale 30%
2. Net profit margin on net sales 8%
3. Rate of selling expenses to net sales 15%
4. Accounts receivable turnover 8per year
5. Inventory turnover 10per year
6. Acid-test ratio 2 to 1
7. Current ratio 3 to 1
8. Quick asset composition:8% cash,27% marketable securities, 65% accounts receivable
9. Asset turnover 2 per year
10. Ratio of total assets to intangible assets 20 to 1
11. Ratio of accumulated depreciation to cost of fixed assets 1 to 3
12. Ratio of accounts receivable to accounts payable 2 to 1
13. Ratio of working capital to stockholders equity 1 to 1.95
14. Ratio of total debt to stockholders equity 1 to 3
The corporation had a net income after tax of $520000 for the year ended December 31,2003,which resulted in earnings of 9.74 per share of common stock. Addition information includes the following:
1. Capital stock authorized, issued(all in 1982), and outstanding:
Common, $10 per share par value, issued at 10% premium
Preferred, 11% nonparticipating,$100 per share par value, issued at a 10% premium
2. Market value per share of common at December 31,2008:$119.52
3. Preferred dividends paid in 2003: $33000
4. Times interest earned in 2003: 28.73
5. The amounts of the following were the same at December 31,2008,as at January 1,2003: inventory, account receivable, 10% bonds payable due 2006,and total stockholders' equity
6. All purchases and sales were ``on account``
INSTRUCTION
(a) Prepare in good form the condensed (1)balance sheet and (2)income statement and Retained Earnings Statement for the year ending December 31,2003, presenting the amounts you would expect to appear on the Lester Fredrick Corporation`s financial statements. The company`s tax rate in 2003 was 30%.Major caption appearing on Lester Frederick`s balance sheet are: Current Assets(list each of the current assets), Property, plant and equipment , Intangible Assets, Current Liabilities (list each current liabilities),Long-Term Liabilities, and Stockholders` Equity (list each section). In addition to the accounts divulged in the problem, you should include accounts for Prepaid Expenses, Accrued Expenses, and Administrative Expenses.
(b) Note: For each amount used to prepare the three financial statements, please show computations.
(c) Compute the following for 2003 (show your computation):
1. Rate of return on common stockholders' equity
2. Price-earnings ratio for common stock
3. Dividends paid per share of common stock
4. Dividends paid per share of preferred stock
5. Dividends yield on common stock