The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $1,212,000 Liabilities: Current liabilities $120,000 Note payable, 6%, due in 15 years 606,000 Total liabilities $726,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $544,500 Common stock, $10 par (no change during year) 544,500 Retained earnings: Balance, beginning of year $580,000 Net income 226,000 $806,000 Preferred dividends $21,780 Common dividends 58,220 80,000 Balance, end of year 726,000 Total stockholders' equity $1,815,000 Sales $16,351,500 Interest expense $36,360 Assuming that total assets were $2,414,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place. a. Ratio of fixed assets to long-term liabilities fill in the blank 1 b. Ratio of liabilities to stockholders' equity fill in the blank 2 c. Asset turnover fill in the blank 3 d. Return on total assets fill in the blank 4 % e. Return on stockholders’ equity fill in the blank 5 % f. Return on common stockholders' equity fill in the blank 6 %
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The following data were taken from the financial statements of Gates Inc. for the current fiscal year.
| Property, plant, and equipment (net) | $1,212,000 | |||||
| Liabilities: | ||||||
| Current liabilities | $120,000 | |||||
| Note payable, 6%, due in 15 years | 606,000 | |||||
| Total liabilities | $726,000 | |||||
| $544,500 | ||||||
| Common stock, $10 par (no change during year) | 544,500 | |||||
| Balance, beginning of year | $580,000 | |||||
| Net income | 226,000 | $806,000 | ||||
| Preferred dividends | $21,780 | |||||
| Common dividends | 58,220 | 80,000 | ||||
| Balance, end of year | 726,000 | |||||
| Total stockholders' equity | $1,815,000 | |||||
| Sales | $16,351,500 | |||||
| Interest expense | $36,360 |
Assuming that total assets were $2,414,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.
| a. Ratio of fixed assets to long-term liabilities | fill in the blank 1 |
| b. Ratio of liabilities to stockholders' equity | fill in the blank 2 |
| c. Asset turnover | fill in the blank 3 |
| d. Return on total assets | fill in the blank 4 % |
| e. Return on stockholders’ equity | fill in the blank 5 % |
| f. Return on common stockholders' equity | fill in the blank 6 % |
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