Profitability Analysis and Analytical Issues

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140 SU 3: Profitability Analysis and Analytical Issues QUESTIONS 3.1 Profitability Ratios Questions 1 and 2 are based on the following information. The financial statements for Dividendosaurus, Inc., for the current year are as follows: Balance Sheet Cash Accounts receivable Inventory Net fixed assets Total $100 200 50 600 $950 Accounts payable Long-term debt Capital stock Retained earnings Total $140 300 260 250 $950 1. Dividendosaurus has return on assets of A. 21.1% B. 39.2% C. 42.1% D. 45.3% 2. Dividendosaurus has a profit margin of A. 6.67% B. 13.33% C. 14.33% D. 46.67% 3. In the current year, Griffin Inc. had $15 million in sales, while total fixed costs were held to $6 million.…show more content…
The dividend is payable on June 24 to all stockholders of record as of June 17. Excerpts from the statement of financial position for Jensen Corporation as of May 31 are presented as follows. Cash Accounts receivable (net) Inventories Total current assets $ 400,000 800,000 1,200,000 $2,400,000 Total current liabilities $1,000,000 Assume that the only transactions to affect Jensen Corporation during June are the dividend transactions. 5. Jensen’s total stockholders’ equity would be A. Unchanged by the dividend declaration and decreased by the dividend payment. B. Decreased by the dividend declaration and increased by the dividend payment. Answer (D) is correct. (CMA, adapted) REQUIRED: The impact on total stockholders’ equity of dividend declaration and payment. DISCUSSION: A dividend declaration reduces retained earnings and thus total stockholders’ equity. The subsequent payment will have no effect on stockholders’ equity since only cash and dividends payable are reduced. C. Unchanged by either the dividend declaration or the dividend payment. D. Decreased by the dividend declaration and unchanged by the dividend payment. 6. If the dividend declared by Jensen Corporation had been a 10% stock dividend instead of a cash dividend, Jensen’s current liabilities would have been A. Unchanged by the dividend declaration and increased by the dividend distribution. Answer (D) is
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