As of December 31, 2014 assets were $20, liabilities were $12 and paid-in-capita
ID: 2814836 • Letter: A
Question
As of December 31, 2014 assets were $20, liabilities were $12 and paid-in-capital was $1. There was no treasury stock or accumulated other comprehensive income at either the beginning or ending of 2015. During the year revenues were $40, gains (net of losses) were $1, paid-in-capital increased by $2 and the company paid out dividends of $4. At the end of the year, equity was $22 and total liabilities were $20.
10) What was the asset turnover for the year ended 12/31/15?
11) What was the return on assets for the year ended 12/31/15?
12) What was the equity multiplier for the year ended 12/31/15?
13) What was the return on equity for the year ended 12/31/15?
Explanation / Answer
Answer to Question 10.
Asset Turnover Ratio = Sales / Average Total Assets
Total Assets, 2014 = $20
Total Assets = Total Liabilities + Total Equity
Total Assets, 2015 = $20 + $22 = $42
Average Total Assets = (20 + 42)/2 = $31
Asset Turnover Ratio = 40/31 = 1.29 times
Answer to Question 11.
Return on Assets = Net Income / Average Total Assets * 100
Return on Assets = 1/31 * 100
Return on Assets = 3.23%
Answer to Question 12.
Equity Multiplier = Total Assets / Total Stockholder's equity
Equity Multiplier = 42/ 22
Equity Multiplier = 1.91
Answer to Question 13.
Return on Equity = Net Income / Average Stockholder's equity
Total Assets = Total Liabilities + Total Stockholder's equity
$20 = $12 + Total Stockholder's equity, 2014
Total Stockholder's equity, 2014 = $8
Average Stockholder's equity = (8 + 22)/2 = $15
Return on Equity = 1/ 15 * 100
Return on Equity = 6.67%
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