Lundberg Corporation's most recent balance sheet and income statement appear below:

Lundberg Corporation's most recent balance sheet and income statement appear below:

Statement of Financial Position December 31, Year 2 and Year1 (in thousands of dollars)
	Year 2			Year 1
Assets
Current assets:
Cash	$	200		$	250
Accounts receivable		360			320
Inventory		210			270
Prepaid expenses		60			60
Total current assets		830			900
Plant and equipment, net		1,860			1,760
Total assets	$	2,690		$	2,660
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	287		$	270
Accrued liabilities		75			100
Notes payable, short term		200			140
Total current liabilities		562			510
Bonds payable		315			390
Total liabilities		877			900
Stockholders' equity:
Preferred stock, $100 par value, 10%		650			650
Common stock, $1 par value		320			320
Additional paid-in capital--common stock		350			350
Retained earnings		493			440
Total stockholders' equity		1,813			1,760
Total liabilities & stockholders' equity	$	2,690		$	2,660

Income Statement For the Year Ended December 31, Year 2 (in thousands of dollars)
Sales (all on account)		$	3,150
Cost of goods sold			2,040
Gross margin			1,110
Selling and administrative expense			677
Net operating income			433
Interest expense			36
Net income before taxes			397
Income taxes (30%)			119
Net income		$	278

Dividends on common stock during Year 2 totaled $160 thousand. Dividends on preferred stock totaled $65 thousand. The market price of common stock at the end of Year 2 was $9.46 per share.

Required:

Compute the following for Year 2:

a.	Gross margin percentage. (Round your answer to 1 decimal place.)

Gross margin percentage

%

b.	Price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answer to 1 decimal place.)

Price-earnings ratio

times

c.	Dividend payout ratio. (Round your intermediate calculations to 2 decimal places and final answer to 1 decimal place.)

Dividend payout ratio

%

d.	Dividend yield ratio. (Round your answer to 2 decimal places.)

Dividend yield ratio

%

e.	Return on total assets. (Round your intermediate calculations and final answer to 2 decimal places.)

Return on total assets

%

f.	Return on common stockholders' equity. (Round your answer to 2 decimal places.)

Return on common stockholders' equity

%

g.	Book value per share. (Round your answer to 2 decimal places.)

Book value per share

$

h.	Working capital.

Working captial

$

i.	Current ratio. (Round your answer to 2 decimal places.)

Current ratio

j.	Acid-test ratio. (Round your answer to 2 decimal places.)

Acid-test ratio

k.	Average collection period. (Assume 365 days a year and round your answer to 1 decimal place.)

Average collection period

days

l.	Average sale period. (Assume 365 days a year and round your answer to 1 decimal place.)

Average sale period

days

m.	Times interest earned. (Round your answer to 2 decimal places.)

Times interest earned

n.	Debt-to-equity ratio. (Round your answer to 2 decimal places.)

Debt-to-equity ratio

Explanation:(All values in thousands.)
a.

Gross margin percentage = Gross margin ÷ Sales = $1,110 ÷ $3,150 = 35.2%

b.

Earnings per share = (Net Income - Preferred Dividends) ÷ Average number of common shares outstanding*

= ($278 - $65) ÷ (320 shares + 320 shares) / 2 = $0.67 per share

*Number of common shares outstanding for year 2 = Common stock ÷ Par value

= $320 ÷ $1.0 per share = 320 shares

Number of common shares outstanding for year 1 = Common stock ÷ Par value

= $320 ÷ $1.0 per share = 320 shares

c.

Price-earnings ratio = Market price per share ÷ Earnings per share (see above)

= $9.46 ÷ $0.67 = 14.12

d.

Dividend payout ratio = Dividends per share* ÷ Earnings per share (see above)

= $0.50 ÷ $0.67 = 74.6%

*Dividends per share = Common dividends ÷ Common shares (see above)

= $160 ÷ 320 shares = $0.50 per share

e.

Dividend yield ratio = Dividends per share (see above) ÷ Market price per share

= $0.50 ÷ $9.46 = 5.30%

f.

Return on total assets = Adjusted net income* ÷ Average total assets**

= $303.20 ÷ $2,675 = 11.33%

*Adjusted net income = Net income + [Interest expense × (1 − Tax rate)]

= $278 + [$36 × (1 − 0.30)] = $303.2

**Average total assets = ($2,690 + $2,660) ÷ 2 = $2,675

g.

Return on common stockholders' equity

= (Net income − Preferred dividends) ÷ Average common stockholders' equity*

= ($278 − $65) ÷ $1,136 = 18.74%

*Average common stockholders' equity = ($320 + $350 + $493 + $320 + $350 + $440) ÷ 2 = $1,136

h.

Book value per share = Common stockholders' equity ÷ Number of common shares outstanding (see above)

= ($320 + $350 + $493) ÷ 320 shares = $3.63 per share

i.

Working capital = Current assets - Current liabilities = $830 − $562 = $268 thousand

j.

Current ratio = Current assets ÷ Current liabilities = $830 ÷ $562 = 1.48

k.

Acid-test ratio = Quick assets* ÷ Current liabilities = $560 ÷ $562 = 1.00

*Quick assets = Cash + Marketable securities + Accounts receivable + Short-term notes receivable

= ($200 + $0 + $360 + $0) = $560

l.

Accounts receivable turnover = Sales on account ÷ Average accounts receivable balance*

= $3,150 ÷ $340 = 9.26

*Average accounts receivable balance = ($360 + $320) ÷ 2 = $340

m.

Average collection period = 365 days ÷ Accounts receivable turnover (see above)

= 365 days ÷ 9.26 = 39.4 days

n.

Inventory turnover = Cost of goods sold ÷ Average inventory balance*

= $2,040 ÷ $240 = 8.50

*Average inventory balance = ($210 + $270) ÷ 2 = $240

o.

Average sale period = 365 days ÷ Inventory turnover (see above) = 365 days ÷ 8.50 = 42.9 days

p.

Times interest earned = Earnings before interest expense and income taxes ÷ Interest expense

= $433 ÷ $36 = 12.03

q.

Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity

= $877 ÷ $1,813 = 0.48