Problem 13-1A Here are comparative statement data for Prince Company and King Co
ID: 2337688 • Letter: P
Question
Problem 13-1A Here are comparative statement data for Prince Company and King Company, two competitors. All balance sheet data are as of December 31, 2014, and December 31, 2013 Prince Company 2014 King Company 2014 2013 2013 Net sales Cost of goods sold Operating expenses Interest expense Income tax expense $1,907,200 1,087,600 262,100 6,900 66,800 $564,900 280,400 85,400 2,900 37,100 Current assets Plant assets (net) Current liabilities Long-term liabilities 1,195,836 1,135,000 317,183 80,240 67,237 739,963$709,171 189,173 $ 180,390 285,593 68,738 56,750 150,558 258,757204,300 172,100 Common stock, $10 par Retained earnings 1,135,000 1,135,000272,400 272,400 391,484 332,771 86,478 68,095Explanation / Answer
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Calculations and explanations:
Return on assets = net income/average total assets. For Prince for 2014 net income = 483,800
Assets for 2014 = 739963+1195836 = 1935799. Assets for 2013 = 709171+1135000 = 1844171
Thus average assets = (1935799+1844171)/2 = 1889985
Thus RoA = 483800/1889985 = 25.6%. Formula for return on equity = net income/average equity.
equity = common stock+retained earnings.
Prince Company King Company Dollars Percent Dollars Percent Net sales 1,907,200 100.0 % 564,900 100.0 % Cost of goods sold 1,087,600 57.0 % 280,400 49.6 % Gross profit 819,600 43.0 % 284,500 50.4 % Operating expenses 262,100 13.7 % 85,400 15.1 % Profit before interest and taxes 557,500 29.2 % 199,100 35.2 % less: other expenses Interest expenses 6,900 0.4 % 2,900 0.5 % Profit before tax 550,600 28.9 % 196,200 34.7 % less: tax 66,800 3.5 % 37,100 6.6 % Profit after tax/Net income 483,800 25.4 % 159,100 28.2 %