T he following selected data were taken from the financial statements of Preslar

Question

The following selected data were taken from the financial statements of Preslar Inc. for December 31, 2012, 2011, and 2010:

The 2012 net income was $435,750, and the 2011 net income was $453,750. No dividends on common stock were declared between 2010 and 2012.

a. Determine the rate earned on total assets, the rate earned on stockholders' equity, and the rate earned on common stockholders' equity for the years 2011 and 2012. When required, round to one decimal place.

Rate earned on total assets:

             2011:

         2012:

Rate earned on stockholders' equity:

             2011:

             2012:

Rate earned on common stockholders' equity:

             2011:

             2012:

Explanation / Answer

Rate earned on total assets:
2011: Net Income 2011/Total Assets 2011 = 453750/4050000 = 11.20%
2012: Net Income 2012/Total Assets 2012 = 435750/4500000 = 9.68%

Rate earned on common stockholders' equity:
2011: Net Income 2011/Common Stock 2011 = 453750/600000 = 75.625%
2012: Net Income 2012/Common Stock 2012 = 435750/600000 = 72.625%

Stock holder equity = Assets - Liabilities = Total Assets - Notes payable
Stock holder equity 2011 = 4050000 - 1500000 = 2550000
Stock holder equity 2012 = 4500000 - 1500000 = 3000000

Rate earned on stockholders' equity:
2011: Net Income 2011/Stock holder equity 2011 = 453750/2550000 = 17.79%
2012: Net Income 2012/Stock holder equity 2012 = 435750/3000000 = 14.525%

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