The following data were taken from the financial statements of Gates Inc. for th

Question

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Assuming that total assets were $2,608,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

Property, plant, and equipment (net) $1,752,600 Liabilities: Current liabilities $153,000 Note payable, 6%, due in 15 years 762,000 Total liabilities $915,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $549,000 Common stock, $10 par (no change during year) 549,000 Retained earnings: Balance, beginning of year $586,000 Net income 298,000 $884,000 Preferred dividends $21,960 Common dividends 130,040 152,000 Balance, end of year 732,000 Total stockholders' equity $1,830,000 Sales $16,059,000 Interest expense $45,720

Explanation / Answer

a) Ratio of fixed assets to long-term liabilities = Fixed Assets/Long term Liabilities

= Property, Plant and Equipment/Note payable

= $1,752,600/$762,000 = 2.30

b)  Ratio of liabilities to stockholders' equity = Total liabilities/Stockholder's Equity

= $915,000/$1,830,000 = 0.50

c) Asset turnover = Net sales/Average Total Assets

Closing Total Assets = Stockholder's Equity+Total Liabilities

= $1,830,000+$915,000 = $2,745,000

Average total assets = (Opening Assets+Closing Assets)/2

= ($2,608,000+$2,745,000)/2 = $2,676,500

Asset Turnover = $16,059,000/$2,676,500 = 6 times

d) Return on Total Assets = Earning before Interest and tax/Average Total Assets

Earning before Interest and tax = Net Income+Interest

= $298,000+$45,720 = $343,720

Return on total Assets = $343,720/$2,676,500 = 12.84%

e) Return on stockholders’ equity = Net Income/Stockholder's Equity

= $298,000/$1,830,000 = 16.28%

f) Return on common stockholders' equity = Earning for common stockholders/Common stockholders'

= (298,000-$21,960)/$1,208,000 = 22.85%

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