The following selected data were taken from the financial statements of Squiggle
ID: 2566782 • Letter: T
Question
The following selected data were taken from the financial statements of Squiggle Group Inc. for December 31, 2016, 2015 and 2014:
December 31 2016 2015 2014
Total assets $256,000 $231,000 $206,000
Notes payable (10% interest) 90,000 90,000 90,000
Common stock 36,000 36,000 36,000
Preferred 7% stock, $100 par 18,000 18,000 18,000
(no change during year)
Retained earnings 98,410 72,145 54,000
The 2016 net income was $27,525, and the 2015 net income was $19,405. No dividends on common stock were declared between 2014 and 2016.
a. Determine the rate earned on total assets, the rate earned on stockholders' equity, and the rate earned on common stockholders' equity for the years 2015 and 2016. When required, round to one decimal place.
2016 2015
Rate earned on total assets _____% _______%
Rate earned on stockholders' equity ______% _______ %
Rate earned on common stockholders' equity _______% ________%
Explanation / Answer
Rate on total assets= Net income /average total assets
2016:
=27525/((256000+231000)/2)
=11.3%
2015:
=19405/((206000+231000)/2)
=8.9%
Rate on stockholder equity= net income/average total equity
Equity in 2014=36000+18000+54000=108000
Equity in 2015=72145+18000+36000=126145
in 2016=36000+18000+98410=152410
2016:
=27525/((152410+126415)/2)
=19.7
2015:
=19405/((126145+108000)/2)
=16.6%
Rate on common equity= net income/averagr common equity
2016:
=27525/((36000+36000)/2)
=76.5%
2015:
=19405/((36000+36000)/2)
=53.9%
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