Question

Condensed balance sheet and income statement data for Jergan Corporation are presented here.

Jergan Corporation
Balance Sheets
December 31
2020 2019 2018
Cash $ 29,300 $ 17,300 $ 17,000
Accounts receivable (net) 49,900 44,100 47,800
Other current assets 90,900 96,000 63,900
Investments 55,200 70,200 45,600
Plant and equipment (net) 500,700 370,600 358,000
$726,000 $598,200 $532,300
Current liabilities $84,800 $79,100 $70,300
Long-term debt 145,700 85,900 50,800
Common stock, $10 par 348,000 320,000 312,000
Retained earnings 147,500 113,200 99,200
$726,000 $598,200 $532,300
Jergan Corporation
Income Statement
For the Years Ended December 31
2020 2019
Sales revenue $743,000 $606,900
Less: Sales returns and allowances 40,000 29,500
Net sales 703,000 577,400
Cost of goods sold 427,400 371,500
Gross profit 275,600 205,900
Operating expenses (including income taxes) 184,210 148,160
Net income $ 91,390 $ 57,740
Additional information:
1. The market price of Jergan’s common stock was $7.00, $7.50, and $8.50 for 2018, 2019, and 2020, respectively.
2. You must compute dividends paid. All dividends were paid in cash.
(a) Compute the following ratios for 2019 and 2020. (Round Asset turnover and Earnings per share to 2 decimal places, e.g. 1.65. Round payout ratio and debt to assets ratio to 0 decimal places, e.g. 18%. Round all other answers to 1 decimal place, e.g. 6.8 or 6.8%.)
2019 2020
(1) Profit margin
Entry field with incorrect answer now contains modified data
%
Entry field with incorrect answer now contains modified data
%
(2) Gross profit rate
Entry field with incorrect answer now contains modified data
%
Entry field with incorrect answer now contains modified data
%
(3) Asset turnover
Entry field with incorrect answer now contains modified data
times
Entry field with incorrect answer now contains modified data
times
(4) Earnings per share $
Entry field with incorrect answer now contains modified data
$
Entry field with incorrect answer now contains modified data
(5) Price-earnings ratio
Entry field with incorrect answer now contains modified data
times
Entry field with incorrect answer now contains modified data
times
(6) Payout ratio
Entry field with incorrect answer now contains modified data
%
Entry field with incorrect answer now contains modified data
%
(7) Debt to assets ratio
Entry field with incorrect answer now contains modified data
%
Entry field with incorrect answer now contains modified data
%

Answer 1

Jergen Corporation

2019 2020

(1) Profit margin Ratios: 13% 10%

(2) Gross profit rate 39.2% 35.7%

(3) Asset turnover 1.06 1.02

(4) Earnings per share $2.63 $1.80

(5) Price-earnings ratio = 3.2x 4.2x

(6) Payout ratio = 62% 76%

(7) Debt to assets ratio = 32% 28%

Step-by-step explanation:

a) Data and Calculations:

Jergan Corporation

Balance Sheets

December 31

2020 2019 2018

Cash $ 29,300 $ 17,300 $ 17,000

Accounts receivable (net) 49,900 44,100 47,800

Other current assets 90,900 96,000 63,900

Investments 55,200 70,200 45,600

Plant and equipment (net) 500,700 370,600 358,000

$726,000 $598,200 $532,300

Current liabilities $84,800 $79,100 $70,300

Long-term debt 145,700 85,900 50,800

Total debt $230,500 $165,000 $121,100

Common stock, $10 par 348,000 320,000 312,000

Retained earnings 147,500 113,200 99,200

$726,000 $598,200 $532,300

Jergan Corporation

Income Statement

For the Years Ended December 31

2020 2019

Sales revenue $743,000 $606,900

Less: Sales returns and allowances 40,000 29,500

Net sales 703,000 577,400

Cost of goods sold 427,400 371,500

Gross profit 275,600 205,900

Operating expenses

(including income taxes) 184,210 148,160

Net income $ 91,390 $ 57,740

2020 2019 2018

Market price of common stock $8.50 $7.50 $7.00

2020 2019 2018

Retained earnings 147,500 113,200 99,200

Net income $ 91,390 $ 57,740

Dividend paid $57,090 $43,740

Outstanding shares 34,800 32,000

Dividend per share $1.64 $1.37

Average Assets: $662,100 $565,250

($726,000 + $598,200)/2 ($598,200 + $532,300)/2

a) Ratios:

2019 2020

(1) Profit margin Ratios: 13% ($91,390/$703,000) 10% ($57,740/$577,400)

(2) Gross profit rate 39.2% 35.7%

($275,600/$703,000) ($205,900/$577,400)

(3) Asset turnover 1.06 1.02

$703,000/$662,100 $577,400/$565,250

(4) Earnings per share $2.63 ($ 91,390/34,800) $1.80 ($57,740/32,000)

(5) Price-earnings ratio = 3.2 ($8.50/$2.63) 4.2 ($7.50/$1.80)

(6) Payout ratio = 62% ($1.64/$2.63) 76% ($1.37/$1.80)

(7) Debt to assets ratio = 32% 28%

($230,500/$726,000) ($165,000/$598,200)