Profitability Ratios: Tanaka Corporation\'s balance sheet indicates the followin

Question

Profitability Ratios:

Tanaka Corporation's balance sheet indicates the following balances as of December 31, 2013.

Required:

If Tanaka's 2013 net income is $74,600, determine its return on equity. Round your answer to two decimal places.

_______% ?

Cash $ 70,000 Accounts receivable 74,600 Inventory 55,000 Property, plant, and equipment 500,000 Accounts payable 75,000 Bonds payable (due in 2017) 100,000 Common stock (12/31/2012) 275,000 Common stock (12/31/2013) 325,000 Retained earnings (12/31/2012) 200,000 Retained earnings (12/31/2013) 260,000

Explanation / Answer

Answer : return on equity = 9.07%

Working notes for the above answer is as under

Return on Eqity == Net Income/ Share holders equity

Here we have been provided that,

Tanaka's 2013 net income is $74,600

Common stock (12/31/2012) =275000+200000=475000

Common stock (12/31/2013) = $ 325000+260000=585000

Anerage Shareholder's Equity

= 475000+585000/2

=822500

Now we will calculate Return on equity

=Net Income/ Avg.Share holders equity

=74600/822500

=0.0907

=9.07%

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