PA13-2 Analyzing Comparative Financial Statements Using Selected Ratios [LO 13-4

Question

PA13-2 Analyzing Comparative Financial Statements Using Selected Ratios [LO 13-4, LO 13-5] The comparative financial statements prepared at December 31 for Pinnacle Plus showed the following summarized data Current Year Previous Year Income Statement Sales Revenue Cost of Goods Sold $115,000 $103,000 50,000 54,000 Gross Profit Operating Expenses Interest Expense 61,000 37,000 4,100 53,000 33,800 4,100 Income before Income Tax Expense Income Tax Expense (30%) 19,900 5,970 15,100 4,530 Net Income $ 13,930 10,570 Balance Sheet Cash Accounts Receivable, Net Inventory Property and Equipment, Net $ 70,805 18,000 26,000 96,000 37,000 13,000 39,000 106,000 Total Assets $210,805 $195,000 $ 43,000 1,025 41,000 $ 34,900 550 41,000 Accounts Payable Income Tax Pavable Note Payable (long-term) Total Liabilities Common Stock (par $10) Retained EarningsT 85,025 90,600 35,180 76,450 90,600 27,950 Total Liabilities and Stockholders' Equity $210,805 $195,000 T During the current year, cash dividends amounting to $6,700 were declared and paid Required: 1-a. Compute the gross profit percentage in the current and previous years. (Round your answers to 1 decimal place.) Gross Profit Percentage Current Year Previous Year

Explanation / Answer

4 Return on commonstockholders equity = net income / total stockholders equity Net income 13930 10570 Beginning stockholders equity 118550 101000 Ending stockholders equity 125780 118550 Average stockholders equity 122165 109775 Return on stockholders equity 11.4% 9.6% 1 Gross profit Rate = Gross profit / Net sales Current year Previous year Sales revenue 115000 103000 Cost of goods sold 54000 50000 Gross profit 61000 53000 Sales revenue 115000 103000 Gross profit rate 53.0% 51.5% Better 2 Profit Margin = Net income / Net sales Current year Previous year Net income 13930 10570 Sales revenue 115000 103000 Profit margin 12.1% 10.3% Better 5 Fixed Assets turnover ratio = Sales revenue / average total assets Sales revenue 115000 103000 Beginning Fixed assets 106000 111000 Ending Fixed assets 96000 106000 Average Fixed assets 101000 108500 Fixed Assets turnover ratio 1.14 0.95 3 Earning per share = Net income /Average number of common shares Net income 13930 10570 Average number of common shares 9060 9060 Earning per share 1.54 1.17 Better

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