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P18-3 Condensed balance sheet and income statement data for Kersenbrock Corporation appear below.

Price: $3.99


P18-3 Condensed balance sheet and income statement data for Kersenbrock Corporation appear
below.

KERSENBROCK CORPORATION
Balance Sheets
December 31
2011 2010 2009

Cash $ 25,000 $ 20,000 $ 18,000
Receivables (net) 50,000 45,000 48,000
Other current assets 90,000 95,000 64,000
Investments 75,000 70,000 45,000
Plant and equipment (net) 400,000 370,000 358,000
$640,000 $600,000 $533,000
Current liabilities $ 75,000 $ 80,000 $ 70,000
Long-term debt 80,000 85,000 50,000
Common stock, $10 par 340,000 310,000 300,000
Retained earnings 145,000 125,000 113,000
$640,000 $600,000 $533,000

KERSENBROCK CORPORATION
Income Statement
For the Year Ended December 31
2011 2010

Sales $740,000 $700,000
Less: Sales returns and allowances 40,000 50,000
Net sales 700,000 650,000
Cost of goods sold 420,000 400,000
Gross profit 280,000 250,000
Operating expenses (including income taxes) 235,000 220,000
Net income $ 45,000 $ 30,000

Additional information:

1. The market price of Kersenbrock’s common stock was $4.00, $5.00, and $8.00 for 2009, 2010,
and 2011, respectively.

2. All dividends were paid in cash.

Instructions

(a) Compute the following ratios for 2010 and 2011.

(1) Profit margin.

(2) Asset turnover.

(3) Earnings per share. (Weighted average common shares in 2011 were 32,000 and in 2010
were 31,000.)

(4) Price-earnings.

(5) Payout.

(6) Debt to total assets.

(b) Based on the ratios calculated, discuss briefly the improvement or lack thereof in
financial position and operating results from 2010 to 2011 of Kersenbrock Corporation.

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