The following data were taken from the financial statements of Gates Inc. for th

Question

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Assuming that total assets were $7,969,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

Property, plant, and equipment (net) $2,444,400 Liabilities: Current liabilities $234,000 Note payable, 6%, due in 15 years 1,164,000 Total liabilities $1,398,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $2,097,000 Common stock, $10 par (no change during year) 2,097,000 Retained earnings: Balance, beginning of year $2,236,000 Net income 661,000 $2,897,000 Preferred dividends $83,880 Common dividends 17,120 101,000 Balance, end of year 2,796,000 Total stockholders' equity $6,990,000 Sales $34,349,700 Interest expense $69,840

Explanation / Answer

a. Ratio of fixed assets to long-term liabilities = Fixed Assets (net) / Long-Term Liabilities                   2,444,400 /                                    1,164,000                             2.10 b. Ratio of liabilities to stockholders' equity = Total Liabilities / Total Stockholders’ Equity                   1,398,000 /                                    6,990,000                             0.20 c. Asset turnover = Net Sales / Average Total Assets*                34,349,700 /                                    8,178,500                             4.20 * [($7,969,000 + $8,388,000) ÷ 2] . The end-of-period total assets are equal to the sum of total liabilities ($1,398,000) and stockholders’ equity ($6,990,000). d. Return on total assets = Net Income + Interest Expense / Average Total Assets* 661,000+69,840 / 8,178,500                      730,840 / 8,178,500 8.94% e. Return on stockholders’ equity = Net Income / Average Total Stockholders’ Equity                      661,000 /                                    6,710,000 9.85% * [($2,236,000 + $2,097,000 + $2,097,000) + $6,990,000] ÷ 2 f. Return on common stockholders' equity = Net Income – Preferred Dividends / Average Common Stockholders’ Equity 661,000 - 83,880 /                                    4,613,000                      577,120 /                                    4,613,000 12.51%

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