Question

In: Accounting

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive...

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $60 on December 31, 20Y8.

AUTOMOTIVE SOLUTIONS INC.
Comparative Income Statement
For the Years Ended December 31, 20Y8 and 20Y7
    20Y8     20Y7
Sales $3,057,970 $2,817,460
Cost of goods sold (1,131,500) (1,040,980)
Gross profit $1,926,470 $1,776,480
Selling expenses $(688,120) $(821,780)
Administrative expenses (586,180) (482,630)
Total operating expenses (1,274,300) (1,304,410)
Operating income $652,170 $472,070
Other revenue and expense:
    Other revenue 34,330 30,130
    Other expense (interest) (216,000) (119,200)
Income before income tax $470,500 $383,000
Income tax expense (56,500) (45,600)
Net income $414,000 $337,400
AUTOMOTIVE SOLUTIONS INC.
Comparative Statement of Stockholders' Equity
For the Years Ended December 31, 20Y8 and 20Y7
20Y8 20Y7
Preferred
Stock
Common
Stock
Retained
Earnings
Preferred
Stock
Common
Stock
Retained
Earnings
Balances, Jan. 1 $400,000 $460,000 $1,950,300 $400,000 $460,000 $1,647,500
Net income 414,000 337,400
Dividends:
    Preferred stock (7,000) (7,000)
    Common stock (27,600) (27,600)
Balances, Dec. 31 $400,000 $460,000 $2,329,700 $400,000 $460,000 $1,950,300
AUTOMOTIVE SOLUTIONS INC.
Comparative Balance Sheet
December 31, 20Y8 and 20Y7
    Dec. 31, 20Y8     Dec. 31, 20Y7
Assets
Current assets:
    Cash $549,190 $336,120
    Temporary investments 831,210 557,010
    Accounts receivable (net) 532,900 503,700
    Inventories 408,800 321,200
    Prepaid expenses 103,910 67,220
        Total current assets $2,426,010 $1,785,250
Long-term investments 1,032,360 -346,988
Property, plant, and equipment (net) 3,240,000 2,916,000
Total assets $6,698,370 $4,354,262
Liabilities
Current liabilities $808,670 $53,962
Long-term liabilities:
    Mortgage note payable, 8%, due in 15 years $1,210,000 $0
    Bonds payable, 8%, due in 20 years 1,490,000 1,490,000
        Total long-term liabilities $2,700,000 $1,490,000
Total liabilities $3,508,670 $1,543,962
Stockholders' Equity
Preferred $0.70 stock, $40 par $400,000 $400,000
Common stock, $10 par 460,000 460,000
Retained earnings 2,329,700 1,950,300
Total stockholders' equity $3,189,700 $2,810,300
Total liabilities and stockholders' equity $6,698,370 $4,354,262

Instructions:

Determine the following measures for 20Y8.

Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the year.

11. Times interest earned ? times
12. Times preferred dividends earned ? times
13. Asset turnover ?
14. Return on total assets ? %
15. Return on stockholders' equity ? %
16. Return on common stockholders' equity ? %
17. Earnings per share on common stock $ ?
18. Price-earnings ratio ?
19. Dividends per share of common stock $ ?
20. Dividend yield ? %

Solutions

Expert Solution

11 )  Times interest earned = EBIT / Interest expense

EBIT = Operating Income + Other Revenue = 652170 + 34330 = 686500

  Times interest earned = 686500 / 216000 = 3.2 Times

12) Times preferred dividends earned = Net Income after tax / preferred dividend

  Times preferred dividends earned = 414000 / 7000 = 59.1 Times

13 ) Asset turnover = Net sales Revenue / Average total ssets

Average total assets = [ assets ( 2017 ) + assets ( 2018 ) ] / 2

Average total assets = ( 6698370 + 4354262 ) / 2 = 5526316

Asset Turnover = 3057970 / 5526316 = 0.6

14) Return on total assets = EBIT * 100 / Average total assets

  Return on total assets = 686500 * 100 / 5526316 = 12.4%

15) Return on stockholders' equity = Net Income * 100 / Total shareholders equity

  Return on stockholders' equity = 414000* 100 / 3189700 = 12.98% or 13%

16) Return on common stockholders' equity = ( Net Income - Preferred dividend ) *100 / Average common stock

Average common stock =[ common stock (2017) + common stock (2018) ] / 2

Average common stock = ( 460000 + 460000 ) / 2 = 460000

Return on common stockholders' equity = ( 414000 - 7000 ) *100 / 460000 = 88.5%

17 ) Earnings per share on common stock = ( Net Income - Preferred dividend ) / Number of common stock outstanding

  Earnings per share on common stock = ( 414000 - 7000 ) / 46000 shares = 8.8

18) Price-earnings ratio = Market price / EPS = 60 / 8.8 = 6.8

19 ) Dividends per share of common stock = common stock dividend / number of shares

Dividends per share of common stock = 27600 / 46000 = 0.6

20)Dividend yield = Dividend per share / market price per share

Dividend yield = 0.6 *100 / 60 = 1%


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