Measures of Liquidity or Profitability The following data were taken from the fi
ID: 2422116 • Letter: M
Question
Measures of Liquidity or Profitability The following data were taken from the financial statements of Whiting Enterprises Inc. for the current fiscal year. Assume that long-term investments totaled S1,000,000 for the past two years and that total assets were S14,400,000 at the beginning of the year etermine the following: (a) ratio of fixed assets to lorvg^-terrr" Ijabil'¡ties, ratio of liabilities to stock holders' equity, ratio of net sales to assets, rate earned on total assets, rate earned on stockholders' equity, and rate earned on common equity. Round to one decimal place. Ratio of fixed assets to long-term liabilities Ratio of liabilities to stockholders' equity Ratio of net sales to assets Rate earned on total assets Rate earned on stockholders' equity Rate earned on common stockholders' equity Partially Correct T Check My Work Feedback Divide property, plant and equipment (net) by long-term liabilities. Divide total liabilities by total stockholders' equity. Divide net sales by average total assets, excluding long-term investments. Average total assets = (Beginning total assets + Ending total assets) 2. To find ending total assets, use the accounting equation and substitute ending liabilities + stockholders' equity for the amount. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning total assets + Ending total assets) 2. To find ending total assets, use the accounting equation and substitute ending liabilities + stockholders' equity for the amount. Divide net income by average stockholders' equity. Average total stockholders' equity = (Beginning stockholders' equity + Ending stockholders' equity) 2. Divide net income minus preferred dividends by average common stockholders' equity. Common stockholders' equity = Common stock + Retained earnings. Average common stockholders' equity - (Beginning common stockholders' equity + Ending common stockholders' equity) 2.Explanation / Answer
a. Ratio of fixed assets to long-term liabilities
= Property, plant and equipment/Long term liabilities = 7,000,000/5,000,000
b. Ratio of liabilities to stockholders' equity
= Total liabilities/Total stock holder's equity = 5.200,000/10,400,000 = 0.5
c. Ratio of net sales to assets
= Net sales/Average total assets ,Average total assets = (Beg TA+ending TA)/2
= 36,400,000/(14,400,000+10,400,000+5,200,000)/2 = 36,400,000/15,000,000 = 2.43
d. Rate earned on total assets %
=(Net income+interest expense)/Average Total assets = (725,000+400,000)/15,000,000 = 0.08
e. Rate earned on stockholders' equity %
= Net income/Average Stockholder's equity = 725,000/(10,400,000+1,000,000)/2 = 0.13
f.Rate earned on Common stockholders' equity %
=(net income- preferred dividends)/Average common stockholders' equity, Common stockholders'equity = Common stock+Retained earnings. Average common stockholders' equity = (Beginning common stockholders equity+Ending common stockholders' equity)/2
= (725,000-300,000)/(7,212,500) = 0.06
Common stock Beginning = 500,000+6,525,000 = 7,025,000
Common stock Ending = 500,000+6,900,000 = 7,400,000