Six Measures of Solvency or Profitability The following data were taken from the

Question

Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Olvideo Enterprises Inc. for the current fiscal year.

Assuming that long-term investments totaled $2,958,000 throughout the year and that total assets were $5,619,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

Property, plant, and equipment (net) $1,478,100 Liabilities: Current liabilities $228,000 Mortgage note payable, 8%, issued 2003, due 2019 1,137,000 Total liabilities $1,365,000 Stockholders' equity: Preferred $2 stock, $100 par (no change during year) $1,365,000 Common stock, $10 par (no change during year) 1,365,000 Retained earnings: Balance, beginning of year $1,456,000 Net income 489,000 $1,945,000 Preferred dividends $27,300 Common dividends 97,700 125,000 Balance, end of year 1,820,000 Total stockholders' equity $4,550,000 Net sales $14,325,900 Interest expense $90,960

Explanation / Answer

SOLUTION

(A) Ratio of Fixed Assets to Long-Term Liabilities = Fixes assets / Long term liabilities

= $1,478,100 / 1,137,000

= 1.3

(B) Ratio of Liabilities to Stockholders’ Equity = Total liabilities / Total stockholder's equity

= $1,365,000 / $4,550,000

= 0.3

(C) Ratio of net sales to assets = Net sales / Average total assets

= $14,325,900 / $2,809,000 = 5.1

Average total assets = [($5,619,000 + ($1,365,000 + $4,550,000))/2 - $2,958,000 ]

= [($5,619,000 + $5,915,000)/2 - $2,958,000 ]

= $2,809,000

(D) Rate earned on total assets = (Net income + interest expense) / Average total assets

= ($489,000 + $90,960) / [($5,619,000 + $5,915,000)/2]

= $579,960 / $5,767,000

= 10.05%

(E) Rate earned on stockholders' equity = Net income / Average stockholder's equity

= $489,000 / $4,368,000 = 11.20%

Average stockholder's equity = ($1,365,000 + $1,365,000 + $1,456,000 + $4,550,000 ) / 2

= $8,736,000 / 2 = $4,368,000

(F) Rate earned on common stockholders' equity

= (Net income - Preferred stock) / Average common stockholder's equity

= ($489,000 - $27,300) / $3,003,000

= $461,700 / $3,003,000 = 15.38%

Average common stockholder's equity = ($1,365,000 + $1,365,000 + $1,456,000 + $1,820,000 ) / 2

= $6,006,000 / 2 = $3,003,000

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---