Chapter 3 problem #37.on pages 88-89 Ratio computation and analysis (LO2) Given the financial statements for Jones Corporation...

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Chapter 3 problem #37.on pages88-89 Ratio computation and analysis (LO2)Given the financial statements forJones Corporation and Smith Corporation shown here:
  a. Towhich one would you, as credit manager for a supplier, approve theextension of (short-term) trade credit? Why? Compute all ratiosbefore answering.
  b. Inwhich one would you buy stock? Why?
JONESCORPORATION
Current Assets
Liabilities
Cash.............................................
$ 20,000
Accountspayable..................
$100,000
Accountsreceivable.....................
80,000
Bonds payable (long-term)....
80,000
Inventory......................................
50,000
Long-TermAssets
Stockholders’Equity
Fixedassets..................................
$500,000
Commonstock.......................
$150,000
Less: Accumulated depreciation
(150,000)
Paid-incapital......................
70,000
Net fixedassets..........................
  350,000
Retainedearnings.................
  100,000
    Totalassets...............................
$500,000
Total liabilities andequity........
$500,000
Sales (oncredit)....................................................................
$1,250,000
Cost of goodssold...............................................................
750,000
Grossprofit..........................................................................
500,000
Selling and administrativeexpense^†..................................
257,000
Less: Depreciationexpense...............................................
50,000
Operatingprofit....................................................................
193,000
Interestexpense....................................................................
8,000
Earnings beforetaxes...........................................................
185,000
Taxexpense...........................................................................
$ 92,500
Netincome............................................................................
$ 92,500
Use net fixed assets in computing fixed asset turnover.
†Includes $7,000 in lease payments.
SMITHCORPORATION
Current Assets
Liabilities
Cash................................
$ 35,000
Accountspayable..................
$  75,000
Marketable securities......
7,500
Bonds payable (long-term)....
210,000
Accounts receivable........
70,000
Inventory........................
75,000
Long-TermAssets
Stockholders’Equity
Fixedassets.....................
$500,000
Commonstock......................
$75,000
Less: Accum. dep.........
(250,000)
Paid-incapital........................
30,000
Net fixed assets............
  250,000
Retainedearnings..................
47,500
Total assets................
$437,500
  Total liab. andequity...........
$437,500
Use net fixed assets in computing fixed asset turnover.
SMITHCORPORATION
Sales (oncredit)....................................................................
$1,000,000
Cost of goodssold................................................................
600,000
Grossprofit...........................................................................
400,000
Selling and administrativeexpense^†...................................
224,000
Less: Depreciationexpense................................................
50,000
Operatingprofit....................................................................
126,000
Interestexpense....................................................................
21,000
Earnings beforetaxes............................................................
105,000
Taxexpense...........................................................................
52,500
Netincome............................................................................
$52,500
†Includes $7,000 in lease payments.

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a current ratio current assets current liabilities Jones 20000 80000 50000 100000 150 Smith 35000 7500 70000 75000 75000 250 quick ratio Cash equivalents marketable securities accounts receivables Current Liabilities Jones See Answer

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Chapter 3 problem #37.on pages88-89 Ratio computation and analysis (LO2)Given the financial statements forJones Corporation and Smith Corporation shown here: a. Towhich one would you, as credit manager for a supplier, approve theextension of (short-term) trade credit? Why? Compute all ratiosbefore answering. b. Inwhich one would you buy stock? Why?JONESCORPORATIONCurrent AssetsLiabilitiesCash.............................................$ 20,000Accountspayable..................$100,000Accountsreceivable.....................80,000Bonds payable (long-term)....80,000Inventory......................................50,000Long-TermAssetsStockholders’EquityFixedassets..................................$500,000Commonstock.......................$150,000Less: Accumulated depreciation(150,000)Paid-incapital......................70,000Net fixedassets*.......................... 350,000Retainedearnings................. 100,000 Totalassets...............................$500,000Total liabilities andequity........$500,000Sales (oncredit)....................................................................$1,250,000Cost of goodssold...............................................................750,000Grossprofit..........................................................................500,000Selling and administrativeexpense†..................................257,000Less: Depreciationexpense...............................................50,000Operatingprofit....................................................................193,000Interestexpense....................................................................8,000Earnings beforetaxes...........................................................185,000Taxexpense...........................................................................$ 92,500Netincome............................................................................$ 92,500*Use net fixed assets in computing fixed asset turnover.†Includes $7,000 in lease payments.SMITHCORPORATIONCurrent AssetsLiabilitiesCash................................$ 35,000Accountspayable..................$ 75,000Marketable securities......7,500Bonds payable (long-term)....210,000Accounts receivable........70,000Inventory........................75,000Long-TermAssetsStockholders’EquityFixedassets.....................$500,000Commonstock......................$75,000Less: Accum. dep.........(250,000)Paid-incapital........................30,000Net fixed assets*............ 250,000Retainedearnings..................47,500Total assets................$437,500 Total liab. andequity...........$437,500*Use net fixed assets in computing fixed asset turnover.SMITHCORPORATIONSales (oncredit)....................................................................$1,000,000Cost of goodssold................................................................600,000Grossprofit...........................................................................400,000Selling and administrativeexpense†...................................224,000Less: Depreciationexpense................................................50,000Operatingprofit....................................................................126,000Interestexpense....................................................................21,000Earnings beforetaxes............................................................105,000Taxexpense...........................................................................52,500Netincome............................................................................$52,500†Includes $7,000 in lease payments.

JONESCORPORATION
Current Assets		Liabilities
Cash.............................................	$ 20,000	Accountspayable..................	$100,000
Accountsreceivable.....................	80,000	Bonds payable (long-term)....	80,000
Inventory......................................	50,000
Long-TermAssets		Stockholders’Equity
Fixedassets..................................	$500,000	Commonstock.......................	$150,000
Less: Accumulated depreciation	(150,000)	Paid-incapital......................	70,000
Net fixedassets*..........................	350,000	Retainedearnings.................	100,000
Totalassets...............................	$500,000	Total liabilities andequity........	$500,000

Sales (oncredit)....................................................................	$1,250,000
Cost of goodssold...............................................................	750,000
Grossprofit..........................................................................	500,000
Selling and administrativeexpense^†..................................	257,000
Less: Depreciationexpense...............................................	50,000
Operatingprofit....................................................................	193,000
Interestexpense....................................................................	8,000
Earnings beforetaxes...........................................................	185,000

Taxexpense...........................................................................	$ 92,500
Netincome............................................................................	$ 92,500

SMITHCORPORATION
Current Assets		Liabilities
Cash................................	$ 35,000	Accountspayable..................	$ 75,000
Marketable securities......	7,500	Bonds payable (long-term)....	210,000
Accounts receivable........	70,000
Inventory........................	75,000
Long-TermAssets		Stockholders’Equity
Fixedassets.....................	$500,000	Commonstock......................	$75,000
Less: Accum. dep.........	(250,000)	Paid-incapital........................	30,000
Net fixed assets*............	250,000	Retainedearnings..................	47,500
Total assets................	$437,500	Total liab. andequity...........	$437,500

SMITHCORPORATION
Sales (oncredit)....................................................................	$1,000,000
Cost of goodssold................................................................	600,000
Grossprofit...........................................................................	400,000
Selling and administrativeexpense^†...................................	224,000
Less: Depreciationexpense................................................	50,000
Operatingprofit....................................................................	126,000
Interestexpense....................................................................	21,000
Earnings beforetaxes............................................................	105,000
Taxexpense...........................................................................	52,500
Netincome............................................................................	$52,500