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Selected items from successive annual reports of Middlebrook, Inc
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
Expert Solution
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
= $5.5
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