Chapter 2: Q3-8BP-b (page 79)
Easter Egg and Poultry Company has \(2,000,000 in assets and \)1,400,000 of debt. It reports net income of $200,000.
b. What is its return on stockholders’ equity?
The return on stockholder’s equity of the company is 33.33%
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Is there any validity in rule-of-thumb ratios for all corporations, such asa current ratio of 2 to 1 or debt to assets of 50 percent?
Classify the following balance sheet items as current or noncurrent:
Retained earning | Bond payable |
Accounts payable | Accrued wages payable |
Prepaid expenses | Accounts receivable |
Plant and equipment | Capital in excess of par |
Inventory | Preferred stock |
Common stock | Marketable security |
Given the following information, prepare an income statement for Jonas Brothers Cough Drops.
Selling and administrative expenses | $328,000 |
Depreciation expenses | 195,000 |
Sales | 1,660,000 |
Interest expenses | 129,000 |
Cost of goods sold | 560,000 |
Taxes | 171,000 |
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:
Current assets | Liabilities | ||
Cash | \(15,000 | Accounts payable | \)17,000 |
Accounts receivable | 20,000 | Notes payable | 25,000 |
Inventory | 30,000 | Bonds payable | 55,000 |
Prepaid expenses | 12,500 | ||
Fixed assets | Stockholder’s equity | ||
Plant and equipment (gross) Less: accumulated depreciation | \(255,000 51,000 | Preferred stock | \)25,000 |
Net plant and equipment | \(204,000 | Common stock | 60,000 |
Paid in capital | 30,000 | ||
Retained earnings | 69,500 | ||
Total assets | \)281,500 | Total liabilities and stockholder’s equity | \(281,500 |
Sales for 20X2 were \)245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was \(24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.
\)2,500 in preferred stock dividends were paid, and \(5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.
During 20X2, the cash balance and prepaid expenses balances were
unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of \)40,000. Accounts payable increased by 20 percent. Notes payable increased by \(6,500 and bonds payable decreased by \)12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.
a. Prepare an income statement for 20X2.
In 20X2, sales increased to \(5,740,000 and the assets for that year were as follows:
Cash | \)163,000 |
Accounts receivable | 924,000 |
Inventory | 1,063,000 |
New plant and equipment | 520,000 |
Total assets | $2,670,000 |
Once again compute the four ratios
b. Compute the following:
1. Accounts receivable turnover.
2. Inventory turnover.
3. Fixed asset turnover.
4. Total asset turnover.
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