Question

17.3

5.

Six Measures of Solvency or Profitability

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

Property, plant, and equipment (net)						$989,800
Liabilities:
	Current liabilities			$142,000
	Note payable, 6%, due in 15 years			707,000
	Total liabilities					$849,000
Stockholders' equity:
	Preferred $2 stock, $100 par (no change during year)					$636,750
	Common stock, $10 par (no change during year)					636,750
Retained earnings:
	Balance, beginning of year	$680,000
	Net income	306,000		$986,000
	Preferred dividends	$12,735
	Common dividends	124,265		137,000
	Balance, end of year					849,000
Total stockholders' equity						$2,122,500
Sales						$18,542,400
Interest expense						$42,420

Assuming that total assets were $2,823,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

Assuming that total assets were $2,823,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long-term liabilities    ______
b. Ratio of liabilities to stockholders' equity ________
c. Asset turnover ________
d. Return on total assets    __	%
e. Return on stockholders’ equity ___	%
f. Return on common stockholders' equity    ___	%

Answer 1

a. Ratio of Fixed asset to Long Term Liabilities

Ratio of Fixed asset to Long Term Liabilities=Fixed Asset/Long Term liabilities

= $989800/707000=1.4

b. Ratio of Liabilities to Stockholder's Equity

= Net Income /Total Stockholder's Equity

=849000/2122500=0.40

c.Asset turnaver Ratio

=Net SalesAsset/Average Total Asset

=$18542400/$2897250=6.40

d. Return Earned on Total Asset

=Annual Net Income /Average Total Asset X100

=306000/2897250X100=10.56%

Average Total Asset= (Opening Asset+Ending Asset)/2

=(2823000+2971500)/2=2897250

Ending Asset= ( Total Asset= Total Liabilities & Equity)=($849000+$2122500)=$2971500

e. Return Earned on Stockholder's Equity

= Net Income /Total Stockholder's Equity X100

=306000/2122500X100=14.42%

f. Retrun Earned on common Stockholder's Equity

= (Net Income- Prefrence Dividend) /Average Common Stockholder's Equity X100

=($306000-$12735)/$1485750X100=19.74%

Common Stock's holder Equity=Total Stockholder's Equity-Prefrence Stocholder's Equity

=(2122500-636750)=$1485750