2018 2017 Income Statement Information Sales revenue Cost of goods sold Net inco
ID: 2588541 • Letter: 2
Question
2018 2017 Income Statement Information Sales revenue Cost of goods sold Net income S 12,144,000 S 8,800,000 6,300,000 288,000 7,893,600 382,720 Balance Sheet Information Current assets Long-term assets S 1,640,000 S1,540,000 1,940,000 2,240,000 Total assets S 3,880,000 3.480,000 s 1,2400 Current iabilities Long-term liabilities Common stock Retained earnings 000 1.460,000 840,000 340,000 940,000 1.460,000 840,000 240,000 Total liabilities and stockholders' equity S 3,880,000 S 3.480,000 Required: 1. Calculate the following profitability ratios for 2018: (Round your answers to 1 decimal place.) lity Ratios a. Gross profit ratio b. Return on assets c. Profit margin d. Asset turnover e. Return on equity times 2. Determine the amount of dividends paid to shareholders in 2018 ScreExplanation / Answer
Answer 1
Profitability ratios for 2018
(a)Gross profit ratio = Gross profit / Net Sales X 100
= (Sales revenue –Cost of goods sold) / Net Sales X 100
= ($ 12,144,000 – 7,893,600) / $ 12,144,000 X 100
= $ 4,250,400 / $ 12,144,000 X 100
= 35 % (Answer)
(b)Return on assets = Net Income / Total Assets X 100
= $ 382,720 / $ 3,880,000 X 100
= 9.9 % (Answer)
(c)Profit margin= Net Income / Net Sales X 100
= $ 382,720 / $ 12,144,000 X 100
= 3.2 % (Answer)
(d)Asset turnover= Net Sales / Average total assets*
= $ 12,144,000 / $ 3,680,000
= 3.3 Times (Answer)
* Average total assets = (Total assets in 2017 + Total assets in 2018) / 2
= ($ 3,880,000 + $ 3,480,000) / 2
= $ 7,360,000 / 2
= $ 3,680,000
(e)Return on equity = Net Income / Shareholder’s equity* X 100
= $ 382,720 / $ 1,180,000 X 100
= 32.4 % (Answer)
*Shareholder’s equity = Common stock + Retained earning
= $ 840,000 + $ 3, 40,000
= $ 1,180,000
Answer 2
Amount of dividend paid to shareholders in 2018
= Retained earnings before any dividends are paid* - Retained earnings for the end of the period
= $ 622,720 - $ 340,000
= $ 282,720 (Answer)
Working Notes:
Steps for calculating amount of dividend paid to shareholders in 2018 are as under:
Step 1: Record the total retained earnings as it appears on the balance sheet at the beginning of the period (ending balance of 2017 is beginning balance of 2018).
Beginning retained earnings = $ 240,000
Step 2: Locate the net income for the period on the income statement for the period (net income for 2018).
Net income for the period = $ 382,720
Step 3: Add the net income (refer step 2) and the beginning retained earnings (refer step 1). This will give you the retained earnings before any dividends are paid.
*Retained earnings before any dividends are paid
= Beginning retained earnings + Net income for the period
= $ 240,000 + $ 382,720
= $ 622,720
Step 4: Subtract the retained earnings for the end of the period (ending balance of 2018) from retained earnings before any dividends are paid (calculated in step 3) for the total amount paid in dividends.
Total amount paid in dividends
= Retained earnings before any dividends are paid - Retained earnings for the end of the period
= $ 622,720 - $ 340,000
= $ 282,720
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