Comparative balance sheets for Softech Canvas Goods for 2016 and 2015 are shown

Question

Comparative balance sheets for Softech Canvas Goods for 2016 and 2015 are shown below. Softech pays no dividends, and instead reinvests all earnings for future growth.

Comparative Balance Sheets ($ in 000s)

                                                        December 31

                                                         2016      2015

Assets:

Cash                                               $ 104       $ 76

Accounts receivable                          190        210

Short-term investments                      86         76

Inventory                                          380       248

Property, plant, and equipment (net) 960       820

                                                     $ 1,720   $ 1,430

Liabilities and Shareholders’ Equity:

Current liabilities                             $ 420      $ 300

Bonds payable                                  250        250

Paid-in capital                                    670       670

Retained earnings                               380      210

                                                      $ 1,720    $ 1,430

Required: 1. Determine the return on shareholders’ equity for 2016. (Round your answer to 2 decimal places.)

Explanation / Answer

Return on shareholder equity Net Income/Average Shareholder Equity Net Income=$380-210 170 Average Sharehoder Equity Opening+closing equity/2 (670+210+670+380)/2 965 Return on shareholder equity 170/965*100 17.62 Ans If ending shareholder equity taken 170/(670+380)*100 16.19 Ans b There are two ways either take average shareholder equity or ending shareholder equity as denominator

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