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Calculating the Average Total Assets and the Return on Assets The income statement, statement of retained earnings, and balance sheet for Santiago Systems are as
Calculating the Average Total Assets and the Return on Assets
The income statement, statement of retained earnings, and balance sheet for Santiago Systems are as follows:
Santiago Systems Income Statement For the Year Ended December 31, 20X2 | |||
Amount | Percent | ||
Net sales | $5,345,000 | 100.0% | |
Less: Cost of goods sold | (3,474,250) | 65.0 | |
Gross margin | $1,870,750 | 35.0 | |
Less: Operating expenses | (1,140,300) | 21.3 | |
Operating income | $730,450 | 13.7 | |
Less: Interest expense | (27,000) | 0.5 | |
Income before taxes | $703,450 | 13.2 | |
Less: Income taxes (40%)* | (281,380) | 5.3 | |
Net income | $422,070 | 7.9 | |
* Includes both state and federal taxes. |
Santiago Systems Statement of Retained Earnings For the Year Ended December 31, 20X2 | |
Balance, beginning of period | $1,205,500 |
Net income | 422,070 |
Total | $1,627,570 |
Preferred dividends | (40,000) |
Dividends to common stockholders | (150,000) |
Balance, end of period | $1,437,570 |
Santiago Systems Comparative Balance Sheets At December 31, 20X1 and 20X2 | |||
20X1 | 20X2 | ||
Assets | |||
Current assets: | |||
Cash | $1,900,000 | $2,100,000 | |
Marketable securities | 350,000 | 400,000 | |
Accounts receivable (net) | 625,000 | 675,000 | |
Inventories | 230,000 | 240,000 | |
Other | 50,000 | 50,000 | |
Total current assets | $3,155,000 | $3,465,000 | |
Property and equipment: | |||
Land | $900,000 | $900,000 | |
Building and equipment (net) | 1,240,800 | 1,192,800 | |
Total long-term assets | $2,140,800 | $2,092,800 | |
Total assets | $5,295,800 | $5,557,800 | |
Liabilities and Stockholders' Equity | |||
Current liabilities: | |||
Notes payable, short term | $247,300 | $256,230 | |
Accounts payable | 240,000 | 250,000 | |
Current maturity of long-term debt | 3,000 | 4,000 | |
Accrued payables | 150,000 | 160,000 | |
Total current liabilities | $640,300 | $670,230 | |
Long-term liabilities: | |||
Bonds payable, 9% | 300,000 | 300,000 | |
Total liabilities | $940,300 | $970,230 | |
Stockholders' equity: | |||
Preferred stock, $25 par, 8% | $500,000 | $500,000 | |
Common stock, $1.00 par | 150,000 | 150,000 | |
Additional paid-in capital* | 2,500,000 | 2,500,000 | |
Retained earnings | 1,205,500 | 1,437,570 | |
Total stockholders' equity | $4,355,500 | $4,587,570 | |
Total liabilities and stockholders' equity | $5,295,800 | $5,557,800 | |
* For common stock only. |
Assume a tax rate of 40%.
Required:
1. Calculate the average total assets.
2. Calculate the return on assets. Round your answer to two decimal places.
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