Week Five Exercise AssignmentFinancial Ratios1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the closeof business on July 10:EdisonCash$4,000Short-term investments 3,000Accounts receivable2,000Inventory1,000Prepaid expenses800Accounts payable200Notes payable: short-term 3,100Accrued payables300Long-term liabilities3,800Stagg$2,5002,5002,5002,5008002003,1003003,800Thornton$1,0002,0003,0004,0008002003,1003003,800a. Compute the current and quick ratios for each of the three companies. (Roundcalculations to two decimal places.) Which firm is the most liquid? Why?2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:20X5Net credit sales$832,000Cost of goods sold440,000Cash, Dec. 31125,000Average Accounts receivable 180,000Average Inventory70,000Accounts payable, Dec. 31 115,00020X4$760,000350,000110,000140,00050,000108,000a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska roundsall calculations to two decimal places.3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stockoutstanding. The company reported the following information for 20X7:Net salesInterest expenseIncome tax expensePreferred dividendsNet incomeAverage assetsAverage common stockholders’$1,500,000$120,000$80,000$25,000$130,000$1,100,000$400,000equitya. Compute the profit margin ratio, the return on equity and the return on assets, roundingcalculations to two decimal places.b. Does the firm have positive or negative financial leverage? Briefly explain.4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data fromthe 20X1 and 20X2 financial statements follow.20X2Current AssetsProperty, Plant, and Equipment(net)IntangiblesCurrent LiabilitiesLong-Term LiabilitiesStockholdersâ EquityNet SalesCost of Goods SoldOperating Expenses20X1$76,00099,000$80,00090,00025,00040,800143,00016,200500,000332,50093,50050,00048,000160,00012,000500,000350,00085,000Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of yourwork.5. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data fromthe 20X1 and 20X2 financial statements follow.20X2Current AssetsProperty, Plant, and Equipment(net)20X1$ 76,00099,000$ 80,00090,000IntangiblesCurrent LiabilitiesLong-Term LiabilitiesStockholdersâ EquityNet SalesCost of Goods SoldOperating Expenses25,00040,800143,00016,200500,000332,50093,50050,00048,000160,00012,000500,000350,00085,000Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.6.Ratio computation. The financial statements of the Lone Pine Company follow.LONE PINE COMPANYComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X220X1AssetsCurrent AssetsCash and Short-Term InvestmentsAccounts Receivable (net)InventoriesTotal Current AssetsProperty, Plant, and EquipmentLandBuildings and Equipment (net)Total Property, Plant, andEquipmentTotal AssetsLiabilities and Stockholdersâ EquityCurrent LiabilitiesAccounts PayableNotes PayableTotal Current LiabilitiesLong-Term LiabilitiesBonds PayableTotal LiabilitiesStockholdersâ EquityCommon StockRetained EarningsTotal Stockholdersâ EquityTotal Liabilities and Stockholdersâ$ 4003,0002,000$5,400$ 6002,4002,200$5,200$1,7001,500$3,200$ 6001,000$1,600$8,600$6,800$1,8001,100$2,900$1,7001,900$3,6004,100$7,0002,100$5,700$ 2001,400$1,600$8,600$ 200900$1,100$6,800EquityLONE PINE COMPANYStatement of Income and Retained EarningsFor the Year Ending December 31,20X2 ($000 Omitted)Net Sales*$36,000Less: Cost of Goods$20,000SoldSelling ExpenseAdministrativeExpenseInterest ExpenseIncome Tax ExpenseNet IncomeRetained Earnings,6,0004,0004002,00032,400$ 3,600900Jan. 1Cash DividendsDeclared and PaidRetained Earnings,$ 4,5003,100$ 1,400Dec. 31*All sales are on account.InstructionsCompute the following items for Lone Pine Company for 20X2, rounding all calculations totwo decimal places when necessary:a. Quick ratiob. Current ratioc. Inventory-turnover ratiod. Accounts-receivable-turnover ratioe. Return-on-assets ratiof. Net-profit-margin ratiog. Return-on-common-stockholdersâ equityh. Debt-to-total assetsi. Number of times that interest is earnedGRADING RUBRICTotal Possible Score: 8.00Liquidity RatiosTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Computation and Evaluation of Activity RatiosTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Profitability Ratios, Trading on the EquityTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Horizontal AnalysisTotal: 2.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Be

low Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Vertical AnalysisTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Ratio ComputationTotal: 2.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.

Week Five Exercise AssignmentFinancial Ratios1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the closeof business on July 10:EdisonCash$4,000Short-term investments 3,000Accounts receivable2,000Inventory1,000Prepaid expenses800Accounts payable200Notes payable: short-term 3,100Accrued payables300Long-term liabilities3,800Stagg$2,5002,5002,5002,5008002003,1003003,800Thornton$1,0002,0003,0004,0008002003,1003003,800a. Compute the current and quick ratios for each of the three companies. (Roundcalculations to two decimal places.) Which firm is the most liquid? Why?2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:20X5Net credit sales$832,000Cost of goods sold440,000Cash, Dec. 31125,000Average Accounts receivable 180,000Average Inventory70,000Accounts payable, Dec. 31 115,00020X4$760,000350,000110,000140,00050,000108,000a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska roundsall calculations to two decimal places.3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stockoutstanding. The company reported the following information for 20X7:Net salesInterest expenseIncome tax expensePreferred dividendsNet incomeAverage assetsAverage common stockholders’$1,500,000$120,000$80,000$25,000$130,000$1,100,000$400,000equitya. Compute the profit margin ratio, the return on equity and the return on assets, roundingcalculations to two decimal places.b. Does the firm have positive or negative financial leverage? Briefly explain.4. Horizontal analysis. Mary Lynn Corporation has been operating for several years. Selected data fromthe 20X1 and 20X2 financial statements follow.20X2Current AssetsProperty, Plant, and Equipment(net)IntangiblesCurrent LiabilitiesLong-Term LiabilitiesStockholdersâ EquityNet SalesCost of Goods SoldOperating Expenses20X1$76,00099,000$80,00090,00025,00040,800143,00016,200500,000332,50093,50050,00048,000160,00012,000500,000350,00085,000Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment on the results of yourwork.5. Vertical analysis. Mary Lynn Corporation has been operating for several years. Selected data fromthe 20X1 and 20X2 financial statements follow.20X2Current AssetsProperty, Plant, and Equipment(net)20X1$ 76,00099,000$ 80,00090,000IntangiblesCurrent LiabilitiesLong-Term LiabilitiesStockholdersâ EquityNet SalesCost of Goods SoldOperating Expenses25,00040,800143,00016,200500,000332,50093,50050,00048,000160,00012,000500,000350,00085,000Prepare a vertical analysis for 20X1 and 20X2. Briefly comment on the results of your work.6.Ratio computation. The financial statements of the Lone Pine Company follow.LONE PINE COMPANYComparative Balance SheetsDecember 31, 20X2 and 20X1 ($000 Omitted)20X220X1AssetsCurrent AssetsCash and Short-Term InvestmentsAccounts Receivable (net)InventoriesTotal Current AssetsProperty, Plant, and EquipmentLandBuildings and Equipment (net)Total Property, Plant, andEquipmentTotal AssetsLiabilities and Stockholdersâ EquityCurrent LiabilitiesAccounts PayableNotes PayableTotal Current LiabilitiesLong-Term LiabilitiesBonds PayableTotal LiabilitiesStockholdersâ EquityCommon StockRetained EarningsTotal Stockholdersâ EquityTotal Liabilities and Stockholdersâ$ 4003,0002,000$5,400$ 6002,4002,200$5,200$1,7001,500$3,200$ 6001,000$1,600$8,600$6,800$1,8001,100$2,900$1,7001,900$3,6004,100$7,0002,100$5,700$ 2001,400$1,600$8,600$ 200900$1,100$6,800EquityLONE PINE COMPANYStatement of Income and Retained EarningsFor the Year Ending December 31,20X2 ($000 Omitted)Net Sales*$36,000Less: Cost of Goods$20,000SoldSelling ExpenseAdministrativeExpenseInterest ExpenseIncome Tax ExpenseNet IncomeRetained Earnings,6,0004,0004002,00032,400$ 3,600900Jan. 1Cash DividendsDeclared and PaidRetained Earnings,$ 4,5003,100$ 1,400Dec. 31*All sales are on account.InstructionsCompute the following items for Lone Pine Company for 20X2, rounding all calculations totwo decimal places when necessary:a. Quick ratiob. Current ratioc. Inventory-turnover ratiod. Accounts-receivable-turnover ratioe. Return-on-assets ratiof. Net-profit-margin ratiog. Return-on-common-stockholdersâ equityh. Debt-to-total assetsi. Number of times that interest is earnedGRADING RUBRICTotal Possible Score: 8.00Liquidity RatiosTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Computation and Evaluation of Activity RatiosTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Profitability Ratios, Trading on the EquityTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Horizontal AnalysisTotal: 2.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Be

low Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Vertical AnalysisTotal: 1.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.Ratio ComputationTotal: 2.00Distinguished – Accurately answers all parts of the problem from the assignment. The submissionincludes a detailed explanation of how the problem was completed and all applicable supportingcomputations.Proficient – Answers all parts of the problem from the assignment with some minor inaccuraciesin the calculations. The submission includes an explanation of how the problem was completedand all applicable supporting computations.Basic – Answers most parts of the problem from the assignment with several inaccuracies in thecalculations. The submission includes a brief explanation of how the problem was completed andpartial supporting computations.Below Expectations – Attempts to answer the problem from the assignment; however, thesubmission is underdeveloped and has many inaccuracies in the calculations. The submissiondoes not include an explanation of how the problem was attempted.Non-Performance – The assignment is either nonexistent or fails to answer the problem from theassignment.