Measures of Solvency or Profitability The following data were Property, plant, a
ID: 2329108 • Letter: M
Question
Measures of Solvency or Profitability The following data were Property, plant, and equipment (net) Liabilities: taken from the financial statements of Gates inc. for the current fiscal vear 1.464.900 153,000 Current liabilities Note payable, 6%, due in 15 years Total liabilities 771,000 $924,000 Stockholders equity: Preferred $2 stock, $100 par (no change during year) Common stock, $10 par (no change during year $1,386,000 1.386,000 Retained earnings Balance, beginning of year 1 478,000 36.000$2,014,000 $27/720 381280166,000 Preferred dividends Common dividends Balance, end of year Total stockholders equity 1,848,000 4,620,000 17.137,750 46,250 Interest expense inwstments totaled $2,/722,0o9 throighout the year and that total assets were $5.267,000 at the begining of the currentfs a. Ratio of fixed assers to long-term bl b. Ratio of Sabilities to stockholdes equity d. Return on total assets e. Return on stockholders equity f. Return on commone stockholders equityExplanation / Answer
Answer a.
Ratio of Fixed Assets to Long-term Liabilities = Property, Plant and Equipment / Notes Payable
Ratio of Fixed Assets to Long-term Liabilities = $1,464,900 / $771,000
Ratio of Fixed Assets to Long-term Liabilities = 1.90
Answer b.
Ratio of Liabilities to Stockholders’ Equity = Total Liabilities / Total Stockholders’ Equity
Ratio of Liabilities to Stockholders’ Equity = $924,000 / $4,620,000
Ratio of Liabilities to Stockholders’ Equity = 0.20
Answer c.
Beginning Total Assets = $5,267,000
Ending Total Assets = Total Liabilities + Total Stockholders’ Equity
Ending Total Assets = $924,000 + $4,620,000
Ending Total Assets = $5,544,000
Average Total Assets = ($5,267,000 + $5,544,000) / 2
Average Total Assets = $5,405,500
Asset Turnover = Sales / Average Total Assets
Asset Turnover = $17,117,750 / $5,405,500
Asset Turnover = 3.17
Answer d.
Return on Total Assets = (Net Income + Interest Expense) / Average Total Assets
Return on Total Assets = ($536,000 + $46,260) / $5,405,500
Return on Total Assets = 10.77%
Answer e.
Beginning Stockholders’ Equity = Preferred Stock + Common Stock + Retained Earnings
Beginning Stockholders’ Equity = $1,386,000 + $1,386,000 + $1,478,000
Beginning Stockholders’ Equity = $4,250,000
Average Stockholders’ Equity = ($4,250,000 + $4,620,000) / 2
Average Stockholders’ Equity = $4,435,000
Return on Stockholders’ Equity = Net Income / Average Stockholders’ Equity
Return on Stockholders’ Equity = $536,000 / $4,435,000
Return on Stockholders’ Equity = 12.09%
Answer f.
Beginning Common Stockholders’ Equity = Common Stock + Retained Earnings
Beginning Common Stockholders’ Equity = $1,386,000 + $1,478,000
Beginning Common Stockholders’ Equity = $4,250,000
Ending Common Stockholders’ Equity = Common Stock + Retained Earnings
Ending Common Stockholders’ Equity = $1,386,000 + $1,848,000
Ending Common Stockholders’ Equity = $3,234,000
Average Common Stockholders’ Equity = ($4,250,000 + $3,234,000) / 2
Average Common Stockholders’ Equity = $3,742,000
Return on Common Stockholders’ Equity = (Net Income - Preferred Dividend) / Average Common Stockholders’ Equity
Return on Common Stockholders’ Equity = ($536,000 - $27,720) / $3,742,000
Return on Common Stockholders’ Equity = 13.58%