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Earnie Bishop 70000

Price: $2.50


Financial information for Ernie Bishop Company is presented below.


Ernie Bishop Company
Balance Sheets
31-Dec
Assets  2013 2012
Cash   70,000  65,000
Short-term investments   52,000  40,000
Receivables (net)   98,000  80,000
Inventory   125,000  135,000
Prepaid expenses   29,000  23,000
Land   130,000  130,000
Building and equipment (net)   168,000  175,000
 672,000  648,000
Liabilities and Stockholders’ Equity
Notes payable   100,000  100,000
Accounts payable   48,000  42,000
Accrued liabilities   44,000  40,000
Bonds payable, due 2014   150,000  150,000
Common stock $10 par  200,000  200,000
Retained earnings   130,000  116,000
 672,000  648,000

Ernie Bishop Company
Income Statement
For the Years Ended December 31
 Net sales   858,000  798,000
Cost of goods sold   611,000  575,000
 Gross profit   247,000  223,000
 Operating expenses   204,500  181,000
Net income   42,500  42,000

Additional information:
1. Inventory at the beginning of 2012 was $118,000.
2. Total assets at the beginning of 2012 were $632,000.
3. No common stock transactions occurred during 2012 or 2013.
4. All sales were on account.
5. Receivables (net) at the beginning of 2012 were $88,000.

Instructions
(a) Indicate, by using ratios, the change in liquidity and profi tability of Ernie Bishop
Company from 2012 to 2013. (Note: Not all profi tability ratios can be computed.)

(b) 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, 2013, and (2) as
of December 31, 2014, after giving effect to the situation. Net income for 2014 was
$50,000. Total assets on December 31, 2014, were $700,000.

Situation Ratio

Situation Ratio
 (1) 18,000 shares of common stock were sold   shares of common stock were sold  Return on common stockholders' 
at par on July 1, 2014.  equity 
(2) All of the notes payable were paid in 2014.  Debt to total assets 
The only change in liabilities was that 
the notes payable were paid. 
(3) Market price of common stock was $9 Price-earnings ratio 
on December 31, 2013, and 12.5 
on December 31, 2014. 

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