Answer:
1. At December 31, 2018, the current ratio was
d. 4,689 / 1,044
2. The number of times interest was earned during 2018 was
c. 1,650 / 150.
3. At December 31, 2018, the book value per share of common stock was
c. $59.40.
4. The rate of return for 2018 based on the year-end common stockholders' equity was
d. 1,005 / 3,564.
Step-by-step explanation:
a) Data and Calculations:
Ramirez Corp. Balance Sheet December 31, 2018
Assets Equities
Cash $ 300,000 Accounts payable $ 630,000
Accounts receivable (net) 1,950,000 Income taxes payable 189,000
Inventories 2,439,000 Misc. accrued payables 225,000
Current assets $4,689,000 Current liabilities $1,044,000
Bonds payable
Plant and equipment, (8%, due 2020) 1,875,000
net of depreciation 1,983,000 Preferred stock ($100 par, 6%
Patents 261,000 cumulative nonparticipating) 750,000
Other intangible assets 75,000 Common stock (no par, 60,000
shares authorized, issued and
outstanding) 1,125,000
Total Assets 7,008,000 Retained Earnings 2,439,000
Treasury stock 1,500 shares of
preferred (225,000)
Total Equities 7,008,000
Ramirez Corp. Income Statement
Year Ended December 31, 2018
Net sales $ 9,000,000
Cost of goods sold 6,000,000
Gross profit 3,000,000
Operating expenses (including
bond interest expense) 1,500,000
Income before
income taxes 1,500,000
Income tax 450,000
Net income $ 1,050,000
Current ratio = Current assets/Current liabilities
= 4,689 / 1,044
Times interest earned = EBIT/Interest Expense
= $1,500,000 + 150,000/$150,000
= 1,650 / 150.
Book value per share =
Book value = Total assets - liabilities + preferred stock
= $7,008,000 - $3,444,000
= $3,564,000/60,000
= $59.40
Net income after cumulative preferred dividend
Net income = $1,050,000
Cumulative dividend 45,000 ($750,000 * 6%)
Income for common
stockholders $1,005,000
Common equity = $3,564,000
Rate of Return on common equity = $1,005,000/$3,564,000
= 0.28