Accounting homework

Financial information for Ernie Bishop Company is presented below.

ERNIE BISHOP COMPANY Balance Sheets December 31
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 2016		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
		2013		2012
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.

(a) Indicate, by using ratios, the change in liquidity and profitability of Ernie Bishop Company from 2012 to 2013. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all others to 1 decimal place, e.g. 6.8 or 6.8% .)

		2012			2013			Change
LIQUIDITY
Current
Acid-test
Receivables turnover
Inventory turnover
PROFITABILITY
Profit margin
Asset turnover
Return on assets
Earnings per share		$

(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
(1)		18,000 shares of common stock were sold at par on July 1, 2014.		Return on common stockholders’ equity
(2)		All of the notes payable were paid in 2014. The only change in liabilities was that the notes payable were paid.		Debt to total assets
(3)		Market price of common stock was $9 on December 31, 2013, and $12.50 on December 31, 2014.		Price-earnings ratio

		2013			2014			Change
Return on common stockholders’ equity
Debt to total assets
Price-earnings ratio