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Testbank Multiple Choice Question 63 Information for Crane Company is given below: Crane Company Balance Sheet...

Testbank Multiple Choice Question 63

Information for Crane Company is given below:

Crane Company

Balance Sheet

December 31, 2021

Assets

Equities

Cash

$ 302000

Accounts payable

$ 625000

Accounts receivable (net)

1955000

Income taxes payable

193000

Inventories

2436000

Miscellaneous accrued payables

227000

Plant and equipment, Bonds payable (8%, due 2023)

1900000

net of depreciation

1983000

Preferred stock ($100 par, 6%
Patents

262000

cumulative nonparticipating)

700000

Other intangible assets

75000

Common stock (no par, 60,000
Total Assets

$7013000

shares authorized, issued
and outstanding)

1127000

Retained earnings

2464000

Treasury stock-1500 shares
of preferred

(223000)

Total Equities

$7013000

Crane Company

Income Statement

Year Ended December 31, 2021

Net sales

$9300000

Cost of goods sold

6100000

Gross profit

3200000

Operating expenses (including bond interest expense)

1600000

Income before income taxes

1600000

Income tax

460000

Net income

$ 1140000


Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and Inventory accounts are unchanged from January 1, 2021, and there were no changes in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2021. Assume that preferred dividends for the current year have not been declared.

The rate of return for 2021 based on the year-end common stockholders' equity was

Solutions

Expert Solution

Answer:
Common shareholders Earnings
               = ( Net Income (-) Preference dividend )
               =   $ 1,140,000   (-) ($700,000 x 6% )
               =    $ 1,140,000   (-) $ 42,000
               =    $ 1,098,000
Reatined Earnings balance   =   $ 2,464,000 (-) Preference dividend
                                                         =   $ 2,464,000 (-) $42,000
                                                         = $ 2,422,000
Total Common stockholder's Equity
                      = Balance of Common stock + Retained earnings Balance
                      =    $ 1,127,000 + $ 2,422,000
                      =     $ 3,549,000
Rate of return for 2021 based on year end common stockholder's equity
                             = Common shareholders Earnings / Total Common stockholder's Equity
                             =       $ 1,098,000 / $ 3,549,000
(or)
                             =    30.94%

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