The financial statements for Castile Products, Inc., are given below: Account ba
ID: 2402027 • Letter: T
Question
The financial statements for Castile Products, Inc., are given below:
Account balances at the beginning of the year were: accounts receivable, $150,000; and inventory, $280,000. All sales were on account. Assets at the beginning of the year totaled $1,000,000, and the stockholders’ equity totaled $655,000.
Gross margin percentage. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)
Net profit margin percentage. (Round your answer to the nearest whole percentage place (i.e., 0.1234 should be entered as 12%).)
Return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
Return on equity. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
The financial statements for Castile Products, Inc., are given below:
Explanation / Answer
Answer 1.
Gross Margin Percentage = Gross Margin / Sales
Gross Margin Percentage = $1,050,000 / $2,240,000
Gross Margin Percentage = 46.88%
Answer 2.
Net Profit Margin = Net Income / Sales
Net Profit Margin = $265,580 / $2,240,000
Net Profit Margin = 12%
Answer 3.
Average Total Assets = ($1,000,000 + $1,458,000) / 2
Average Total Assets = $1,229,000
Return on Total Assets = [Net Income + Interest Expense * (1 - tax rate)] / Average Total Assets
Return on Total Assets = [$265,580 + $30,600 * (1 - 0.30)] / $1,229,000
Return on Total Assets = $287,000 / $1,229,000
Return on Total Assets = 23.4%
Answer 4.
Average Stockholders’ Equity = ($858,000 + $655,000) / 2
Average Stockholders’ Equity = $756,500
Return on Equity = Net Income / Average Stockholders’ Equity
Return on Equity = $265,580 / $756,500
Return on Equity = 35.1%
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