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xCeng a x takeAssignment/takeAssignmentMain.do?invoker-assignments&takeAssignment; tMain.do?invoker-assignments&takeAssignmentSessionLocator; assignment-take&inprogress-false; Caloulator Print ham Six Measures of Solvency or Profitability The following data were taken from the financial statements of Gates Inc. for the current fiscal vear $1,034,800 Property, plant, and equióment (net) Liabilities: $158,000 796,000 Current labilities Note payable, 6%, due in 15 years Total abilities Stockholders equity: $954,000 572, 400 572,400 Preferred $4 stock, $100 par (no change during year) Common stock, $10 par (no change during year) Retained earnings $610,000Explanation / Answer
Answer:
1. Ratio of Fixed assets to Long term Liabilities = Fixed Assets / Long term liabilities
= 1034800 / 796000
= 1.3 times
2.Return on Total Assets = Net Income / Average total assets
Total assets at the closing of year = total liabilities + shareholders equity
= 954000 + 1908000
= 2862000
Total assets at the beginning of the year = 2719000
Average total assets = (2862000+2719000) /2
Average Total Assets = 2790500
Return on Total Assets = 263000 / 2790500
= 9.4%
3.Return on shareholder equity = Net income / Shareholders Equity
= 263000 / 1144800
= 22.9%
4. Return on Common Shareholders equity = Net income – Preferred Dividend
Average common shareholder’s equity
Net Income – Preferred Dividend = 263000 - 22896 = 240104
Average common shareholder’s equity = average total shareholders’ equity less average preferred shareholders equity.
Average Total Shareholder’s equity = 1908000 ( since, last year total shareholder’s equity balance is not given)
Average preferred shareholder’s equity = (572400+572400) / 2 = 572400
Since it is mentioned that there is no change in the preferred shareholder equity during the year.
Hence, Average common shareholder’s equity = 1908000 - 572400
= 1335600
Return on common shareholder’s equity = 240104 / 1335600
= 17.9%
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