Question

In: Accounting

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

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

Property, plant, and equipment (net) $1,752,600
Liabilities:
Current liabilities $153,000
Note payable, 6%, due in 15 years 762,000
Total liabilities $915,000
Stockholders' equity:
Preferred $4 stock, $100 par (no change during year) $549,000
Common stock, $10 par (no change during year) 549,000
Retained earnings:
Balance, beginning of year $586,000
Net income 298,000 $884,000
Preferred dividends $21,960
Common dividends 130,040 152,000
Balance, end of year 732,000
Total stockholders' equity $1,830,000
Sales $16,059,000
Interest expense $45,720

Assuming that total assets were $2,608,000 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

Solutions

Expert Solution

a) Ratio of fixed assets to long-term liabilities = Fixed Assets/Long term Liabilities

= Property, Plant and Equipment/Note payable

= $1,752,600/$762,000 = 2.30

b)  Ratio of liabilities to stockholders' equity = Total liabilities/Stockholder's Equity

= $915,000/$1,830,000 = 0.50

c) Asset turnover = Net sales/Average Total Assets

Closing Total Assets = Stockholder's Equity+Total Liabilities

= $1,830,000+$915,000 = $2,745,000

Average total assets = (Opening Assets+Closing Assets)/2

= ($2,608,000+$2,745,000)/2 = $2,676,500

Asset Turnover = $16,059,000/$2,676,500 = 6 times

d) Return on Total Assets = Earning before Interest and tax/Average Total Assets

Earning before Interest and tax = Net Income+Interest

= $298,000+$45,720 = $343,720

Return on total Assets = $343,720/$2,676,500 = 12.84%

e) Return on stockholders’ equity = Net Income/Stockholder's Equity

= $298,000/$1,830,000 = 16.28%

f) Return on common stockholders' equity = Earning for common stockholders/Common stockholders'

= (298,000-$21,960)/$1,208,000 = 22.85%


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