The accounting department of your company has just delivered a draft of the curr

Question

The accounting department of your company has just delivered a draft of the current year's financial statements to you. The summary is as follows:

You discovered that they have not adjusted for estimated bad debt expenses of $7,000. For each of the following ratios, calculate:

1. The ratio that would have resulted had the error not been discovered (i.e. the incorrect ratio).

2. The correct ratio.

Beginning of the Year End of the Year Total Assets $550,000 $561,000 Total Liabilities 210,000 218,000 Total Equity 340,000 343,000 Net Income for the Year   99,400 Common Shares Outstanding 21,000 21,000

Explanation / Answer

Incorrect Correct Net income 99,400 92,400 Total assets (average) 555,500 552,000 Total liabilities (average) 214,000 214,000 Total equity (average) 341,500 338,000 Common shares outstanding 21,000 21,000 ROA ( net income / average assets) 17.89% 16.74% ROE ( net income / average equity) 29.11% 27.34% Debt ratio ( liabilities to total assets) 38.52% 38.77% EPS ( net income / no. of common shares) $ 4.73 per share $ 4.4 per share

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.