The document presents financial data for Ernie Bishop Company, including balance sheets and income statements for 2012 and 2013, highlighting changes in assets, liabilities, and net income. It indicates a small increase in net income from $42,000 in 2012 to $42,500 in 2013, alongside changes in liquidity and profitability ratios. Additional computations are requested for scenarios affecting specific financial ratios in 2014.

1. Problem 14-4A
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

2. 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

3. 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

4. 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.

5. (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

6. 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

7. 2013
2014
Change
Return on common stockholders’ equity
Debt to total assets
Price-earnings ratio
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