Given the financial statements for Jones Corporation and Smith Corporation shown here:

a. To which one would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why? Compute all ratios before answering.

b. In which one would you buy stock? Why?

Sales (on credit)....................................................................	$1,250,000
Cost of goods sold................................................................	750,000
Gross profit...........................................................................	500,000
Selling and administrative expense†...................................	257,000
Less: Depreciation expense................................................	50,000
Operating profit....................................................................	193,000
Interest expense....................................................................	8,000
Earnings before taxes............................................................	185,000
Tax expense...........................................................................	92,500
Net income............................................................................	$ 92,500

*Use net fixed assets in computing fixed asset turnover.

†Includes $7,000 in lease payments.

SMITH CORPORATION
Sales (on credit)....................................................................	$1,000,000
Cost of goods sold................................................................	600,000
Gross profit...........................................................................	400,000
Selling and administrative expense†...................................	224,000
Less: Depreciation expense................................................	50,000
Operating profit....................................................................	126,000
Interest expense....................................................................	21,000
Earnings before taxes............................................................	105,000
Tax expense...........................................................................	52,500
Net income............................................................................	$ 52,500

†Includes $7,000 in lease payments.

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JONES CORPORATION Current Assets Cash Accounts receivable Inventorv S 20,000 80,000 50,000 Liabilities Accounts payae100,000 Bonds payable (long-term) 80,000 Long-Term Assets Stockholders' Equity Fixed assets $500,000 Common stock S150,000 70,000 Less: Accumulated depreciation Paid-in capital (150,000) Net fixed assets* 350,000 Retained earnings 100,000 Total assets Total liab, and equity00,000 SMITH CORPORATION Current Assets Liabilities Cash Marketable securities Accounts receivable Inventory S 75,000 S 35,000 Accunts payable 7,500 Bonds payable (long-term). 210,000 75,000 ong-Term Assets Stockholders' Equity Fixed assets $500,000 Common stock S 75,000 30,000 Less: Accum. dep(250,000) Paid-in capital Net fixed asses. 250,000 Retained eangs...4/,500 $437.500 Total liab, and equity Total assets... 437500