In: Accounting
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 |
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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 |
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20Y8 | 20Y7 | |||||||||||||||||
Preferred Stock |
Common Stock |
Retained Earnings |
Preferred Stock |
Common Stock |
Retained Earnings |
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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 |
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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 | ? % |
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%