Jerry Rice and Grain Stores has $4,780,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has $123,000 in current liabilities and $349,000 in long-term liabilities.
a. What is its return on stockholders’ equity?
The return on the stockholder’s equity is 16.57%.
Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows
|Cost of goods sold||1790000|
|Gross profits||$ 1000000|
|Selling and administrative expenses||302000|
|Operating profits||$ 698000|
|Income before tax||$ 643200|
|Income after tax||$ 450240|
b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:
Plant and equipment (gross)
Less: accumulated depreciation
Net plant and equipment
Paid in capital
Total liabilities and stockholder’s equity
Sales for 20X2 were $245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.
$2,500 in preferred stock dividends were paid, and $5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.
During 20X2, the cash balance and prepaid expenses balances were
unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of $40,000. Accounts payable increased by 20 percent. Notes payable increased by $6,500 and bonds payable decreased by $12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.
c. Prepare a balance sheet as of December 31, 20X2.
Stein Books Inc. sold 1,900 finance textbooks for $250 each to High Tuition University in 20X1. These books cost $210 to produce. Stein Books spent $12,200 (selling expense) to convince the university to buy its books. Depreciation expense for the year was $15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm’s tax rate is 30 percent. Did Stein Books make a profit in 20X1? Please verify with an income statement.
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