Answer:
Crosby Corporation
a. Statement of Cash Flows
Operating activities:
Operating Income               $304,000
Add Depreciation                  300,000
Cash from operations        $604,000
Changes in working capital items:
Accounts receivable (net)       (5,000)
Inventory                                (70,000)
Prepaid expenses                    27,700
Accounts payable                 243,000
Notes payable                         0
Accrued expenses                 (18,900)
Interest expense                   (87,900)  
Taxes                                   (155,000)
Net cash from operations $537,900
Investing Activities:
Purchase of plant              (480,000)
Investments
  (long-term securities)         16,600
Financing Activities:
Bonds payable                      21,000
Preferred stock dividends  (10,000)
Common stock dividends (153,000)
Net cash flows                  ($67,500)
Reconciliation with cash:
Beginning Cash Balance   134,000                 
Ending Cash Balance       $66,500
b. The book value per common share for both 20X1 and 20X2:
= Total stockholders’ equity/Common stock outstanding
          20X1                                    20X2 
=  $ 1,445,400/150,000              $ 1,343,500/150,000
= $9.636                                     = $8.957
= $9.64                                       = $8.96
Market value = $8.96 * 3.6 = $32.256
c. If the market value of a share of common stock is 3.6 times book value for 20X2, P/E ratio =
P/E ratio = Market price/EPS
= $32.256/$ .34 
= 94.87 times
Explanation:
a) Data and Calculations:
CROSBY CORPORATION
Income Statement
For the Year Ended December 31, 20X2
Sales                                                                          $ 3,880,000
Cost of goods sold                                                      2,620,000
Gross profit                                                                $ 1,260,000
Selling and administrative expense    656,000
Depreciation expense                          300,000           956,000
Operating income                                                       $ 304,000
Interest expense                                                              87,900
Earnings before taxes                                                 $ 216,100
Taxes                                                                              155,000
Earnings after taxes                                                      $ 61,100
Preferred stock dividends                                              10,000
Earnings available to common stockholders              $ 51,100
Shares outstanding                                                      150,000
Earnings per share                                                         $ .34
Statement of Retained Earnings
For the Year Ended December 31, 20X2
Retained earnings, balance, January 1, 20X2             $ 855,400
Add: Earnings available to common stockholders, 20X2 51,100
Deduct: Cash dividends declared and paid in 20X2     153,000
Retained earnings, balance, December 31, 20X2     $ 753,500
Comparative Balance Sheets
For 20X1 and 20X2
                                                         Year-End  20X1        Year-End  20X2
Assets
Current assets:
Cash                                                     $ 134,000                 $ 66,500
Accounts receivable (net)                     526,000                   531,000
Inventory                                                649,000                   719,000
Prepaid expenses                                   66,800                      39,100
Total current assets                        $ 1,375,800             $ 1,355,600
Investments (long-term securities)       99,500                     82,900
Gross plant and equipment         $ 2,520,000             $ 3,000,000
Less: Accumulated depreciation     1,450,000                  1,750,000
Net plant and equipment                 1,070,000                 1,250,000
Total assets                                  $ 2,545,300             $ 2,688,500
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable                           $ 315,000                $ 558,000
Notes payable                                    510,000                    510,000
Accrued expenses                              76,900                     58,000
Total current liabilities                   $ 901,900               $ 1,126,000
Long-term liabilities:
Bonds payable, 20X2                      198,000                     219,000
Total liabilities                            $ 1,099,900               $ 1,345,000
Stockholders’ equity:
Preferred stock, $100 par value   $ 90,000                   $ 90,000
Common stock, $1 par value          150,000                     150,000
Capital paid in excess of par         350,000                    350,000
Retained earnings                          855,400                    753,500
Total stockholders’ equity        $ 1,445,400               $ 1,343,500
Total liabilities and 
  stockholders’ equity             $ 2,545,300              $ 2,688,500
Changes in working capital items:
                                                     20X1           20X2       Changes
Accounts receivable (net)      526,000       531,000        5,000
Inventory                                 649,000       719,000      70,000
Prepaid expenses                    66,800          39,100     -27,700
Accounts payable                $ 315,000  $ 558,000    243,000
Notes payable                         510,000      510,000   0
Accrued expenses                   76,900        58,000     -18,900
Bonds payable, 20X2          198,000         219,000      21,000
Investments (long-term securities) 99,500    82,900    16,600
Plant and equipment                    252,000  300,000  -48,000