Problem 18-2A The comparative statements of Painter Tool Company are presented b
ID: 2489065 • Letter: P
Question
Problem 18-2A
The comparative statements of Painter Tool Company are presented below.
PAINTER TOOL COMPANY
Income Statement
For the Years Ended December 31
2017
2016
PAINTER TOOL COMPANY
Balance Sheets
December 31
Assets
2017
2016
Liabilities and Stockholders’ Equity
All sales were on account.
Compute the following ratios for 2017. (Weighted-average common shares in 2017 were 57,000.) (Round Earnings per share, Current ratio and Acid-test ratio to 2 decimal places, e.g. 1.65 or 1.65:1, and all other answers to 1 decimal place, e.g. 6.8 or 6.8%.)
PAINTER TOOL COMPANY
Income Statement
For the Years Ended December 31
2017
2016
Net sales $1,818,500 $1,750,500 Cost of goods sold 1,011,500 996,000 Gross profit 807,000 754,500 Selling and administrative expenses 499,000 479,000 Income from operations 308,000 275,500 Other expenses and losses Interest expense 18,000 14,000 Income before income taxes 290,000 261,500 Income tax expense 87,000 77,000 Net income $ 203,000 $ 184,500Explanation / Answer
Ratios for 2017 are calculated as under:
a. Earnings per share is $3.56 per share calculated as under:
Particulars
Amount ($)
Net income- Preferred stock dividends (a)
$203,000
Average common stock outstanding (b) as given in question
57,000
Earnings per share (a)/(b)
3.56
b. Return on common Stockholders Equity ratio:
Return on common stockholder’s equity ratio is the net income left for the equity shareholders’ divided by the average of common stockholders’ equity.
This ratio is computed by dividing the Net income minus Preferred Stock dividends by the average of common stockholders’ equity.
Net Income for year 2017 is $203,000
Total common stockholders’ equity for year 2017 is $280,000 and for year 2009 is $300,000
So average of total common stockholders’ equity is $290,000
Formula for showing the return on common stockholders’ equity is shown as under:
Return on common stockholders’ equity = Net Income / Average total common equity
= 203,000/290,000
= 70%
c.
Return on assets is the net income divided by the average of total assets
Now net income for year 2017 is $203,000
Assets as on 2017 is 970,200 and 2016 is 852,800
So average is 911,500
Formula for showing the return on assets is shown as under:
Return on assets = Net Income/ Average total assets
= 203,000/ 911,500
= 22.3%
d. Current ratio is the current assets divided by the current liabilities.
Total current assets for 2017 is 369,900
Total current liabilities for 2017 is 203,500
So current ratio is 369,900/203,500 = 1.82
Particulars
Amount ($)
Net income- Preferred stock dividends (a)
$203,000
Average common stock outstanding (b) as given in question
57,000
Earnings per share (a)/(b)
3.56