ezto.mheducation.com/hm.tpx The balance sheets for Plasma Screens Corporation an
ID: 2587995 • Letter: E
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ezto.mheducation.com/hm.tpx 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 S 138,880 S 118,000 90.000 78,000 1.800 74,000 93,000 3,800 Long-term assets Land Equipment Less: Accumulated depreciation 460,000 770,000 (408,000) 460,000 650,000 (248,000) Total assets S 1,131,680 S1,149,800 Liabilities and Stockholders' Equity Current liabilities 97,600 S Accounts payable Interest payable Income tax payable 83,000 11,800 4.800 5,500 7,500 100,000 680.000 Long-term liabilities Notes payable 200,000 Stockholders' equity Common stock Retained earnings 680.000 170,200 241,080 Total liabilities and stockholders' equity S 1,131,680 S 1,149,800 Additional information for 2018 Type here to searchExplanation / Answer
(1).
(a). Gross Profit Ratio;
Formula is as follow;
Gross profit ratio = Gross profit * 100 / Net sales
Gross profit ($1451400 – $1120050) = $331350
Net sales = $1451400
Thus gross profit ratio = $331350 * 100 / $1451400 = 22.83%
(b). Return on assets;
Formula is as follow;
Return on assets = Net income * 100 / Average total assets
Net income = $70880
Average total assets ($1131680 + $1149800 / 2) = $1140740
Thus Return on assets = $70880 * 100 / $1140740 = 6.21%
(c). Profit margin;
Formula is as follow;
Profit margin = Net income * 100 / Net sales
Net income = $70880
Net sales = $1451400
Thus Return on assets = $70880 * 100 / $1451400= 4.88%
(d). Assets turnover;
Formula is as follow;
Profit margin = Net sales / Average total assets
Net sales = $1451400
Average total assets ($1131680 + $1149800 / 2) = $1140740
Thus Asset turnover = $1451400 / $1140740 = 1.27 Times
(e). Return on equity;
Formula is as follow;
Profit margin = Net income *100 / Shareholders’ equity
Net income = $70880
Shareholders’ equity ($680000 + $241080) = $921080
Thus Asset turnover = $70880 * 100 / $921080 = 7.69 %
(2).
Answer is (Yes).
Explanation;
As we know that return on equity means net income available or equity shareholders wheras return on assets refers to net income generated on total assets. Hence it is possible that one company have higher return on assets while other have higher return on equity. We know that equity and assets both are different thing so it will depend on the volume of equity and assets. If a company have lower amount of equity in compare to total assets then it may happen that company have higher return on equity but have lower return on total assets.
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