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Question

I assignments takeAssignmentSessionl ocator=assignment take&inpr; tuo nnvoker rofitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20YS: December 31 20Y7 20Y6 20YS Total assets Notes payable (896 interest) Common stock Preferred 6% stock, $100 par $265,000 90,000 36,000 18,000 $239,000 90,000 36,000 18,000 $213,000 90,000 36,000 18,000 (no change during year) Retained earnings The 20Y7 net income was $28,800, and the 20Y6 net income was $15,860. No dividends on common stock were declared between 20YS and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7. a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders' equity for the years 20Y6 and 20Y7. When required, round to one decimal place. 96,500 68,780 54,000 20Y7 20Y6 Return on total assets Return on stockholders' equity Return on common stockholders' equity b. The profitability ratios indicate that vidahili Inc.'s profitability has improved 21.1] % 23.361 % 13.7 1 % 15.18', % . Since the rate of return on assets is less than the 10 e

Explanation / Answer

Answer:

Return on Stockholders’ Equity = Net Income / Average Stockholders’ Equity

For 20Y6:
Average Stockholders’ Equity = (Beginning Stockholders’ Equity + Ending Stockholders’ Equity) / 2
Beginning Stockholders’ Equity = $36,000 + $18,000 + $54,000
Beginning Stockholders’ Equity = $108,000

Ending Stockholders’ Equity = $36,000 + $18,000 + $68,780
Ending Stockholders’ Equity = $122,780

Average Stockholders’ Equity = (108,000 + 122,780) / 2
Average Stockholders’ Equity = $115,390

Return on Stockholders’ Equity = 15,860 / 115,390
Return on Stockholders’ Equity = 13.7%

For 20Y7:
Average Stockholders’ Equity = (Beginning Stockholders’ Equity + Ending Stockholders’ Equity) / 2
Beginning Stockholders’ Equity = $36,000 + $18,000 + $68,780
Beginning Stockholders’ Equity = $122,780

Ending Stockholders’ Equity = $36,000 + $18,000 + $96,500
Ending Stockholders’ Equity = $150,500

Average Stockholders’ Equity = (122,780 + 150,500) / 2
Average Stockholders’ Equity = $136,640

Return on Stockholders’ Equity = 28,800 / 136,640
Return on Stockholders’ Equity = 21.1%

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