Acc280 Financial Accounting: P14-3 Condensed balance sheet and income statement data for Kersenbrock

Acc280 Financial Accounting

Problem P14-3
Condensed balance sheet and income statement data for Kersenbrock Corporation appear below.
KERSENBROCK CORPORATION
Balance Sheet
December 31, 20016
2012 2011 Difference
Cash $25,000 $20,000 $18,000
Receivables (net) 50,000 45,000 48,000
Other current assets 90,000 95,000 64,000
Investments 75,000 70,000 45,000
Plant and equipment (net) 400,000 370,000 358,000
$640,000 $600,000 $533,000
Current liabilities $75,000 $80,000 $70,000
Long-term debt 80,000 85,000 50,000
Common stock, $10 par 340,000 310,000 300,000
Retained Earnings 145,000 125,000 113,000
$640,000 $600,000 $533,000

KERSENBROCK CORPORATION
Income Statement
For the Year Ended December 31
2012 2011
Sales $740,000 $700,000
Less: Sales returns and allowances 40,000 50,000
Net sales 700,000 650,000
Cost of goods sold 420,000 400,000
Gross profit 280,000 250,000
Operating expenses (including income taxes) 235,000 220,000
Net income $45,000 $30,000

Additional information:
1. The market price of Kersenbrock’s common stock was:
$4.00 for 2010
$5.00 for 2011
$8.00 for 2012
2. All dividends were paid in cash.

Instructions:
a. Compute the following ratios for 2011 and 2012. (1) Profit margin. (2) Asset turnover. (3) Earnings per share. (Weighted average common shares in 2012 were 32,000 and in 2011 were 31,000.) (4) Price-earnings. (5) Payout. (6) Debt to total assets. (Round earnings per share to 2 decimal places, e.g. 10.50 and all other answers to 1 decimal place, e.g. 10.5. Use the rounded amount for future calculations.)
b. Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating results from 2011 to 2012 of Kersenbrock Corporation.
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