Financial information for Ernie Bishop Company is presented below.

Additional information:1. Inventory at the beginning of 2012 was $118,000.2. Total assets at the beginning of 2012 were $630,000.3. No common stock transactions occurred during 2012 or 2013.4. All sales were on account.Instructions(a) Indicate, by using ratios, the change in liquidity and profitability of Ernie Bishop Company from 2012 to 2013. (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, 2013, and (2) as of December 31, 2014, after giving effect to the situation. Net income for 2014 was $50,000. Total assets on December 31, 2014, were $700,000.Situation........................Ratio(1) 18,000 shares of common stock were sold.....Return on common stockholders'at par on July 1, 2014.................equity(2) All of the notes payable were paid in 2014.....Debt to total assetsThe only change in liabilities was that thenotes payable were paid.(3) Market price of common stock was $9......Price-earnings ratioon December 31, 2013, and $12.80 onDecember 31,2014.

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ERNIE BISHOP COMPANY Balance Sheets December 31 Assets 2013 2012 $ 70,000 $ 65.000 Cash Short-term investments 52,000 40.000 98,000 Receivables (net) 80,000 Inventory Prepaid expenses Land Building and equipment (net) 125,000 135,000 29,000 23.000 130,000 130,000 180,000 175.000 $684,000 $648,000 Liabilities and Stockholders' Equity Notes payable Accounts payable $100,000 $100,000 48,000 42.000 Accrued liabilities 50,000 40,000 150,000 200,000 Bonds payable, due 2014 Common stock, $10 par Retained earnings 150,000 200.000 136,000 116.000 $648.000 $684,000 ERNIE BISHOP CCOMPANY Income Statement For the Years Ended December 31 2013 2012 Net sales $850.000 $790.000 Cost of goods sold 620.000 575.000 230.000 Gross profit Operating expenses 215.000 187.000 173.000 $ 43,000 $ 42.000 Net income