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 $632,000.
3. No common stock transactions occurred during 2012 or 2013.
4. All sales were on account.
5. Receivables (net) at the beginning of 2012 were $88,000.
Instructions
(a) Indicate, by using ratios, the change in liquidity and profitability of Ernie Bishop Company from 2012 to 2013.
(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 assets
The only change in liabilities was that
the notes payable were paid.
(3) Market price of common stock was $9 Price-earnings ratio
on December 31, 2013, and $12.50 on
December 31,2014.

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Ernie Bishop Company Balance Sheets December 31 2013 2012 Assets Cash Short-term investments Receivables (net) Inventory Prepaid expenses Land Building and equipment (net) 40,000 80,000 135,000 23,000 130,000 175,000 $672,000 $648,000 70,000 65,000 52,000 98,000 125,000 29,000 130,000 168,000 Liabilities and Stockholders' Equity Notes payable Accounts payable Accrued liabilities Bonds payable, due 2014 Common stock, $10 par Retained earnings 100,000 $100,000 42,000 40,000 150,000 200,000 116,000 48,000 44,000 150,000 200,000 130,000 $672,000 $648,000 Ernie Bishop Company Income Statement For the Years Ended December 31 2013 2012 Net sales Cost of goods sold Gross profit Operating expenses Net income $858,000 $798,000 611,000 5/5400O0 247,000 204,500 42,500 42,000 223,000 181,000