The balance sheets for Plasma Screens Corporation and additional information are

Question

The balance sheets for Plasma Screens Corporation and additional information are provided below PLASMA SCREENS CORPORATION Balance Sheets December 31, 2018 and 2017 2018 2017 Assets Current assets Cash Accounts receivable Inventory Investments $139,920 122,000 94,000 82,000 2,200 82,000 97,000 4,200 Long-term assets Land Equipment Less: Accumulated depreciation 500,000 810,000 (448,000) 500,000 690,000 (288,000) Total assets $ 1,185,120 $ 1,202,200 Liabilities and Stockholders' Equity Current liabilities Accounts payable Interest payable $99,400 $ 87,000 12,200 5,200 7,000 Income tax payable Long-term liabilities Notes payable Stockholders' equity: Common stock 9,000 120,000 720,000 240,000 720,000 137,800 Retained earnings 229,720 Total liabilities and stockholders' equity $ 1,185,120 $ 1,202,200 Additional information for 2018: 1. Net income is $91,920 2. Sales on account are $1,592,800 3. Cost of goods sold is $1,208,250

Explanation / Answer

a.

b.

c.

d. Asset turnover

e.

2. Yes

Total assets are financed part by equity and part by debt. Consider the below example where company A is financed 100% with equity and company B with 50% equity.

Company has higher return on assets, where as company B has higher return on equity due to leverage.

a Sales 15,92,800 Less: Cost of goods sold 12,08,250 b Gross profit     3,84,550 c=a/b *100 Gross profit ratio 24.1%

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