Chapter 2: 11BP a (page 79)
Baker Oats had an asset turnover of 1.6 times per year.
a. If the return on total assets (investment) was 11.2 percent, what was Baker’sprofit margin?
The profit margin of the company is 7%.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Jim Short’s Company makes clothing for schools. Sales in 20X1 were
\(4,820,000. Assets were as follows:
Cash | \)163,000 |
Accounts receivable | 889,000 |
Inventory | 411,000 |
New plant and equipment | 520,000 |
Total assets | $1,983,000 |
a. Compute the following:
1. Accounts receivable turnover.
2. Inventory turnover.
3. Fixed asset turnover.
4. Total asset turnover.
Baker Oats had an asset turnover of 1.6 times per year.
b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?
Explain how depreciation generates actual cash flows for the company.
In January 2007, the Status Quo Company was formed. Total assets were \(544,000, of which \)306,000 consisted of depreciable fixed assets. Status
Quo uses straight-line depreciation of \(30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been \)29,000 per year each of the last 10 years. Other assets have not changed since 2007.
b. To what do you attribute the phenomenon shown in part a?
Fill in the blank spaces with categories 1 through 7:
1. Balance sheet (BS)
2. Income statement (IS)
3. Current assets (CA)
4. Fixed assets (FA)
5. Current liabilities (CL)
6. Long-term liabilities (LL)
7. Stockholders’ equity (SE)
Indicate whether item is on Balance sheet (BS) or Income statement (IS) | If on Balance sheet, designate which category | Item |
Accounts receivable | ||
Retained earnings | ||
Income tax expense | ||
Accrued expense | ||
Cash | ||
Selling and administrative expenses | ||
Plant and equipment | ||
Operating expenses | ||
Marketable securities | ||
Interest expense | ||
Sales | ||
Notes payable (6 month) | ||
Bonds payable, maturity 2019 | ||
Common stock | ||
Depreciation expense | ||
Inventories | ||
Capital in excess of par value | ||
Net income (earning after tax) | ||
Income tax payable |
What do you think about this solution?
We value your feedback to improve our textbook solutions.
