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Homework answers / question archive / Selected items from successive annual reports of Middlebrook, Inc

Selected items from successive annual reports of Middlebrook, Inc

Accounting

Selected items from successive annual reports of Middlebrook, Inc., appear as follows. 
Year 1 Year 2 Total assets (40% of which are current) $ 451,000 $ 327,000 Current liabilities $ 80,000 $ 100,000 Bonds payable, 12% 100,000 50,000 Capital stock, $5 par value 100,000 100,000 Retained earnings 171,000 77,000 Total liabilities & stockholders' equity $ 451,000 $ 327,000 
Dividends of $16,000 were declared and paid in year 2. 

a. Compute the current ratio for year 2 and year 1. (Round your answers to 1 decimal place.) year year (Round _ b. Compute the debt ratio for year 2 and year 1. (Round your percentage answers to nearest whole percent. i.e. 01234 as 12%.) . 
c. Compute the earnings per share for year 2

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1)

a) Current ratio = Current assets / Current liabilities

Year 2: (451,000 * 40%) / 80,000 = $180,400 / 80,000 = 2.3

Year 1: (327,000 * 40%) / 100,000 = $130,800 / 100,000 = 1.3

 

b) Debt ratio = Total debt / Total assets = (Current liabilities + Bonds) / Total assets

Year 2: (80,000 + 100,000) / 451,000 = 180,000 / 451,000 = 0.40 (or) 40% (Approximately)

Year 1:(100,000 + 50,000) / 327,000 = 150,000 / 327,000 = 0.46 (or) 46%

 

c) Earnings per share for Year 2:

Earnings per share for Year 2 = Earnings available for shareholders / Number of Equity Shares

= (Increase in Retained earnings + Dividends declared and paid) / (Capital stock / Face value per share)

= (171,000 - 77,000 + 16,000) / (100,000 / 5)

= 110,000 / 20,000

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