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LOGIC COMPANY Comparative Income Statement For Years Ended December 31, 2014 and

ID: 2741619 • Letter: L

Question

LOGIC COMPANY
Comparative Income Statement
For Years Ended December 31, 2014 and 2015
2015 2014   Gross sales $ 21,200     $ 16,650   Sales returns and allowances 800     100   Net sales $ 20,400      $ 16,550   Cost of merchandise (goods) sold 11,450      8,400   Gross profit $ 8,950     $ 8,150   Operating expenses:      Depreciation $ 920     $ 710      Selling and administrative 3,850     3,100      Research 770     610      Miscellaneous 580     410        Total operating expenses $ 6,120     $ 4,830   Income before interest and taxes $ 2,830     $ 3,320   Interest expense 780     610   Income before taxes $ 2,050     $ 2,710   Provision for taxes 820     1,084   Net income $ 1,230     $ 1,626 LOGIC COMPANY
Comparative Balance Sheet
December 31, 2014 and 2015
2015 2014 Assets   Current assets:      Cash $ 13,100      $ 10,100      Accounts receivable 17,600      13,600      Merchandise inventory 9,600      15,100      Prepaid expenses 25,100      11,100        Total current assets $ 65,400      $ 49,900   Plant and equipment:      Building (net) $ 15,600      $ 12,100      Land 14,600      10,100        Total plant and equipment $ 30,200      $ 22,200   Total assets $ 95,600      $ 72,100 Liabilities   Current liabilities:      Accounts payable $ 14,100      $ 8,100      Salaries payable 8,100      6,100        Total current liabilities $ 22,200      $ 14,200   Long-term liabilities:      Mortgage note payable 23,100      21,600        Total liabilities $ 45,300      $ 35,800   Stockholders’ Equity   Common stock $ 22,100      $ 22,200   Retained earnings 28,200      14,100          Total stockholders’ equity      $ 50,300      $ 36,300   Total liabilities and stockholders’ equity $ 95,600      $ 72,100 Calculate the return on equity (after tax) ratio. (Round your answers to the nearest hundredth.)   2015   2014   Return on equity       LOGIC COMPANY
Comparative Income Statement
For Years Ended December 31, 2014 and 2015
2015 2014   Gross sales $ 21,200     $ 16,650   Sales returns and allowances 800     100   Net sales $ 20,400      $ 16,550   Cost of merchandise (goods) sold 11,450      8,400   Gross profit $ 8,950     $ 8,150   Operating expenses:      Depreciation $ 920     $ 710      Selling and administrative 3,850     3,100      Research 770     610      Miscellaneous 580     410        Total operating expenses $ 6,120     $ 4,830   Income before interest and taxes $ 2,830     $ 3,320   Interest expense 780     610   Income before taxes $ 2,050     $ 2,710   Provision for taxes 820     1,084   Net income $ 1,230     $ 1,626

Explanation / Answer

Return On Equity= Net income/ Avg Stock holder’s Equity

2014: As 2013 data is not available we cant know Avg Stock holder’s Equity hence we take 2014 Stock holder’s Equity as Avg Stock holder’s Equity

Return On Equity= 1,626/36,300

                                   =0.04478 or 4.48%

2015:

Avg Stock holder’s Equity= 36,300+50,300/2

                                                =86,600/2

                                                =$43,300

Return On Equity= 1,230/43,300

                                =0.02841

                                Or 2.84