Six Measures of Solvency or ProfitabilityThe following data were taken from the financial statements of Gates Inc. for the current fiscal year.Property, plant, and equipment (net)    $998,400Liabilities:      Current liabilities  $126,000   Note payable, 6%, due in 15 years  624,000   Total liabilities    $750,000Stockholders' equity:      Preferred $4 stock, $100 par (no change during year)    $1,125,000 Common stock, $10 par (no change during year)    1,125,000Retained earnings:      Balance, beginning of year$1,200,000     Net income484,000 $1,684,000   Preferred dividends$45,000     Common dividends139,000 184,000   Balance, end of year    1,500,000Total stockholders' equity    $3,750,000Sales    $21,498,750Interest expense    $37,440Assuming that total assets were $4,275,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.      d.  Return on total assets%e.  Return on stockholders’ equity%f.  Return on common stockholders' equity

Question
Asked Nov 26, 2019
2 views

Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Property, plant, and equipment (net)         $998,400
Liabilities:          
  Current liabilities     $126,000    
  Note payable, 6%, due in 15 years     624,000    
  Total liabilities         $750,000
Stockholders' equity:          
  Preferred $4 stock, $100 par (no change during year)         $1,125,000
  Common stock, $10 par (no change during year)         1,125,000
Retained earnings:          
  Balance, beginning of year $1,200,000        
  Net income 484,000   $1,684,000    
  Preferred dividends $45,000        
  Common dividends 139,000   184,000    
  Balance, end of year         1,500,000
Total stockholders' equity         $3,750,000
Sales         $21,498,750
Interest expense         $37,440

Assuming that total assets were $4,275,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

   
   
   
d.  Return on total assets %
e.  Return on stockholders’ equity %
f.  Return on common stockholders' equity  
check_circle

Expert Answer

Step 1

d.

Calculate return on total assets:

Return on total assets = Net income / Average total assets

Return on total assets = $484,000 / ($4,275,000 + $4,500,000)

Return on total assets = $484,000 / $4,387,500

Return on total assets = 11.0%

Step 2

e.

Calculate return on stockholders' equity:

Return on stockholders' equity = Net income / Average stockholders' equity

Return on stockholders' equity = $484,000 / ($3,450,000 + $3,750,000)

...

help_outline

Image Transcriptionclose

Current Year Previous Year Stockholder's equity: $1,125,000 $1,125,000 $1,500,000 $1,125,000 Preferred stock Common stock Retained earnings Total stockholders' equity $1,125,000 $1,200,000 $3,450,000 $3,750,000 NOTE: Preferred stock and common stock considered same amount

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Other

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: P 3-2 Allocation schedule for fair value/book value differential and consolidated balance sheet at a...

A: Click to see the answer

question_answer

Q: Edmonds Company includes 1 coupon in each box of soap powder that it packs, and 5 coupons are redeem...

A: Record the purchase of premiums.

question_answer

Q: Jamison Company has an investment in assets of $960,000 income that is 10% of sales, and an ROI of 1...

A: GivenIncome is 10% of salesROI is 16%Investment is $960,000. Calculation of sales: 

question_answer

Q: Becky had net sales (all on Accounts) in 2020 of $8,000,000. At december 31, 2020, before adjusting ...

A: Account receivable of a company is an account which is made to show the collective amount of all tho...

question_answer

Q: PARRISH 2-3 Pg. 33 1) Please but the following transaction in the appropriate A=L+SE category. 2) St...

A: The basic Accounting Equation is  Assets = Equity + LiabilitiesAssets are the resources owned by the...

question_answer

Q: nancial information for two companies are presented below.     Fill in the missing amounts....

A: Gross profit percentage helps the company to compare gross margin to the net sales. This ratio tells...

question_answer

Q: PARRISH 2-3 Pg. 33 (Second Time Asking) **Please be careful with your answer.  I am asking it AGAIN ...

A: The accounting equation is Assets= Liability +Owner's Equity.All assets have debit balance and all l...

question_answer

Q: I need to know how to recoed this transaction in a general journal. Completed consulting job for Tom...

A: Journal entries is recording the of the transaction in the accounting journal in a chronological ord...

question_answer

Q: Distinguish between cash basis and accrual basis of account.

A: Accounting: Accounting is an art of recording, classifying, analyzing and summarizing the financial ...