westion 4: (5 marks) financial information of Grogan Company appear below: Accou

Question

westion 4: (5 marks) financial information of Grogan Company appear below: Accounts payable Short-term notes payable....15,000 Bonds payabl.... Common stock S15,000 45,000 80,000 75,000 30,000 20,000 35,000 35,000 $10,000 45,000 75,000 7,500 12.500 25,000 55,000 200,000 26,000 130,000 9,000 13,500 120,000 25,000 Short-term investmen Cash. Inventory Retained eamings. Net sales.. Operating expenses 50.000 Property, plant and equipment (net) Interest expense Income tax expense.. Cost of goods sold. Accounts receivable (nt 15,000 Additional information a. Cash dividends of $11,500 were declared and paid in 2017 b. Weighted-average number of shares of common stock outstanding during 2017 was 15,000 shares. c Market value of common stock on December 31, 2017, was $10.50 per share. Iastructions: Using the financial information and additional information, compute the following ratios for Grogan Company for 2017. Show all computations. I. Current ratio 2. Retum on common stockholders equity 3. Price-earnings ratio 4. Payout ratio 5. Return on sales End of Questions Page 7 of 7

Explanation / Answer

1)

current ratio =current asset /current liabilities

         =70000/25000

          = 2.8

2)Total equity at 2016 :common stock +retained earning

            = 75000+35000

              = 110000

Total equity at 2017: 75000+55000 = 130000

Average equity = [130000+110000]/2

        = 120000

Return on stockholders equity = Net income /average equity

           = 31500 /120000

           = .2625 or 26.25%

**Net Income :revenue -expense

           = 200000-26000-9000-13500-120000=31500

earning per share =Net Income /average shares outstanding

         = 31500/15000

        = 2.1

3)PE ratio : Market price /earning per share

        =10.50 / 2.1

         = 5

4)Payout ratio = Dividend /ne income

               = 11500/31500

             = .3651 or 36.51%

5)Return on sales = net income/sales

        31500/ 200000

          .1575 or 15.75%

2017 current asset cash 12500 short term investmen 7500 accounts receivable 25000 Inventory 25000 Total current asset 70000 current liabilities Accounts payable 10000 short term note payable 15000 Total current liabilities 25000

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