Using the balance sheets and income statements, Calculate the capitalization, re

Question

Using the balance sheets and income statements, Calculate the capitalization, return on assets, and current ratios for Year 2. Note, 75% of sales are credit sales, and 200,000 of common dividends, and 34,265 of preferred dividends have been paid over the year. Show work.

Year 1 Year 2 Cash 771,750 900,375 Acct. Rec. 1,221,938 1,382,719 Inventory 1,543,500 1,672,125 Land 1,218,281 1,218,281 Building & Equip 1,768,594 1,707,813 Total Asset 6,524,063 6,881,313 Year 1 Year 2 Acct. Pay 2,572,500 2,701,125 Note Pay 200,000 300,000 Bond Pay Long trm 1,286,250 803,906 Common Stock 192,938 192,938 Addt. Paid in Cap 1,125,469 1,125,469 Retained Earning 1,146,906 1,757,875 Total Liab+Stock Eq 6,524,063 6,881,313 Year 1 Year 2 Sales 6,431,250 8,000,000 COGS 3,858,750 5,042,100 Gross Profit 2,572,500 2,957,900 Adv. Exp 160,781 418,031 Dep. Exp 257,250 328,251 Office supp Exp 128,625 144,703 Interest Exp 257,250 192,938 Income tax Prov. 1,215,506 1,028,743 Net Income 533,088 845,234

Explanation / Answer

Solution: Calculation of capitalization, return on assets and current ratio for year 2:-

Capitalization = Corporation's stock + Long-term debt + Retained Earnings

   = (192,938+1,125,469) + 803,906 + 1,757,875

   = $3,880,188

Return on Assets = Net Income/Average total assets

= 845,234/[(6,524,063+6,881,313)/2]

   = 0.1261 or 12.61%

Current ratio= Current assets/Current lliabilities=(900,375+1,382,719+1,672,125)/(2,701,125+300,000)

=3,955,219/3,001,125 = 1.3179

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