The comparative financial statements prepared at December 31 for Golden Corporat

Question

The comparative financial statements prepared at December 31 for Golden Corporation showed the following summarized data Current Previous Income Statement Sales revenue Cost of goods sold $220,000 $197,000 116,000 126,000 Gross profit Operating expenses Interest expense 94,000 61,300 3,500 81,000 56,800 3,400 Income before income taxes Income tax expense 29,200 8,760 20,800 3,800 Net income $ 20,440 17,000 Balance Sheet Cash Accounts receivable (net) Inventory Property and equipment (net) S 6,140 S8,800 27,000 43,000 46,000 27,000 48,000 53,000 $134,140 $124,800 Current liabilities Note payable (long-term) Common stock (par 55) Additional paid-in capital Retained earnings* $ 16,500 53,000 34,800 6,600 23,240 24,600 53,000 34,800 5,800 6,600 $134,140 124,800 During the current year, cash dividends of $3,800 were declared and paid Required: 1-a. Compute the gross profit percentage for the current and previous years. (Round your answers to 1 decimal place.) ross Profi Percentage Current Year Previous Year 1-b. Are the current year results better, or worse, than those for the previous year? O Better O Worse

Explanation / Answer

1a Computation of gross profit percentage A B C=(B/A)*100 Sales Revenue Gross Profit Gross Profit percentage Current Year $220,000 $94,000 42.73% Previous year $197,000 $81,000 41.12% Gross Profit Percentage Current Year 42.7% Previous year 41.1% 1b Current year sales, gross profit and gross profit percentage are higher Current year results are better than previous year Answer: Better 2a Computation of net profit margin A B C=(B/A)*100 Sales Revenue Net Income Net Profit margin Current Year $220,000 $20,440 9.29% Previous year $197,000 $17,000 8.63% Net Profit Margin Current Year 9.3% Previous year 8.6% 2b Current year net profit margin is higher Current year results are better than previous year Answer: Better 3a Computation of Earning Per Share A B C=A/B D E=D/C Common Stock Par value Number of shares Net Income Earning Per Share (EPS) Current Year $34,800 $5 6960 $20,440 $       2.94 Previous year $34,800 $5 6960 $17,000 $       2.44 Earning per Share Current Year $            2.94 Previous year $            2.44 3b Current year Earning per share is higher Current year results are better than previous year Answer: Better 4a Computation of Return on Equity (ROE) Previous Year: Stockholder equity at the beginning $34,800 Stockholder equity at the End $        47,200 (124800-24600-53000) Average stock holder equity $        41,000 (34800+47200)/2 Current Year: Stockholder equity at the beginning $47,200 Stockholder equity at the End $        64,640 (34800+6600+23240) Average stock holder equity $        55,920 (47200+64640)/2 A B C=A/B Average shareholder Return on Net Income Equity Equity (ROE) Current Year $20,440 $          55,920 0.3655222 Previous year $17,000 $          41,000 0.4146341 Return on Equity (ROE) Current Year 36.6% Previous year 41.5% 4b Current year ROE is lower Current year results are worse than previous year Answer: Worse

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