Financial information for Ernie Bishop Company is presented below.

ERNIE BISHOP COMPANY

Statements of Financial Position

December 31

ERNIE BISHOP COMPANY
Income Statement
For the Years Ended December 31

Additional information:
1. Inventory at the beginning of 2015 was €118,000.
2. Total assets at the beginning of 2015 were €632,000.
3. No ordinary share transactions occurred during 2015 or 2016.
4. All sales were on account.
5. Accounts receivable (net) at the beginning of 2015 were €88,000.
6. Notes payable are classified as a current liability.
Instructions
(a) Indicate, by using ratios, the change in liquidity and profitability of Ernie Bishop Company from 2015 to 2016. (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, 2016, and
(2) As of December 31, 2017, after giving effect to the situation. Net income for 2017 was €50,000. Total assets on December 31, 2017, were €700,000.
____________________ Situation __________________________ Ratio
(1) 18,000 ordinary shares were sold ...............Return on ordinary shareholders'
at par on July 1, 2017. .................................equity
(2) All of the notes payable were paid in 2017..... Debt to assets ratio
The only change in liabilities was that
the notes payable were paid.
(3) Market price of ordinary shares was €9 .........Price-earnings ratio
on December 31, 2016, and €12.50 on
December 31, 2017?

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Assets Land Building and equipment (net) Prepaid expenses Inventory Accounts receivable (net) Short-term investments Cash 2016 130,000 168,000 29,000 125,000 98,000 52,000 70,000 672,000 2015 130,000 175,000 23,000 135,000 80,000 40,000 65,000 648,000 Equity and Liabilities Share capital-ordinary, 10 par 200,000 Retained earnings Bonds payable, due 2019 Notes payable Accounts payable Accrued liabilities 130,000 150,000 100,000 48,000 44,000 672,000 200,000 116,000 150,000 100,000 42,000 40,000 648,000 2016 2015 Net sales Cost of goods sold Gross profit Operating expenses Net income 858,000 798,000 600 575,000 223,000 181,000 42,000 247,000 204,500 42,500