Financial information for Messersmith Company is presented below.

| October 3, 2018

Financial information for Messersmith Company is presented below.MESSERSMITH COMPANY Balance Sheets December 31Assets20152014Cash$ 70,000$ 65,000Short-term investments52,00040,000Accounts receivable (net)98,00080,000Inventory125,000135,000Prepaid expenses29,00023,000Land130,000130,000Building and equipment (net)180,000175,000$684,000$648,000Liabilities and Stockholders EquityNotes payable$100,000$100,000Accounts payable48,00042,000Accrued liabilities50,00040,000Bonds payable, due 2016150,000150,000Common stock, $10 par200,000200,000Retained earnings136,000116,000$684,000$648,000MESSERSMITH COMPANY Income Statement For the Years Ended December 3120152014Net sales$850,000$790,000Cost of goods sold620,000575,000Gross profit230,000215,000Operating expenses187,000173,000Net income$ 43,000$ 42,000Additional information:Inventory at the beginning of 2014 was $118,000.Total assets at the beginning of 2014 were $630,000.No common stock transactions occurred during 2014 or 2015.All sales were on account. Accounts receivable, net at the beginning of 2014, were $88,000.Notes payable are classified as current liabilities.Instructions(a)Indicate, by using ratios, the change in liquidity and profitability of Messersmith Company from 2014 to 2015. (Note:Not all profitability ratios can be computed.)(b)Given below are three independent situations and a ratio that may be affected. For each situation, compute the affected ratio (1) as of December 31, 2015, and (2) as of December 31, 2016, after giving effect to the situation. Net income for 2016 was $50,000. Total assets on December 31, 2016, were $700,000.SituationRatio18,000 shares of common stock were sold at par on July 1, 2016.Return on common stockholders” equityAll of the notes payable were paid in 2016 The only change in liabilities was that the notes payable were paid.Debt to assets ratioMarket price of common stock was $9 on December 31, 2015, and $12.80 on December 31, 2016.Price-earnings ratio

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