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Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Property, plant, and equipment $($net$)$ $$1,972,000$

Liabilities:

Current liabilities $$232,000$

Note payable, $6\%,$ due in $15$ years $1,160,000$

Total liabilities $$1,392,000$

Stockholders' equity:

Preferred $$2$ stock, $$100$ par $($no change during year$)$ $$2,088,000$

Common stock, $$10$ par $($no change during year$)2,088,000$

Retained earnings:

Balance, beginning of year $$2,228,000$

Net income $762,000$ $$2,990,000$

Preferred dividends $$41,760$

Common dividends $164,240206,000$

Balance, end of year $2,784,000$

Total stockholders' equity $$6,960,000$

Sales $$17,058,100$

Interest expense $$69,600$

Assuming that long$-$term investments totaled $$4,176,000$ throughout the year and that total assets were $$7,934,000$ at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a$.$ Ratio of fixed assets to long$-$term liabilities fill in the blank $1$

$1\mathrm{.}7$

b$.$ Ratio of liabilities to stockholders' equity fill in the blank $2$

$0\mathrm{.}2$

c$.$ Asset turnover fill in the blank $3$

$4\mathrm{.}3$

d$.$ Return on total assets fill in the blank $4$

$4$

$\%$

e$.$ Return on stockholders$$ equity fill in the blank $5$

$5$

$\%$

f$.$ Return on common stockholders' equity fill in the blank $6$

$15\mathrm{.}6$

$\%$

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a$.$ Divide property, plant and equipment $($net$)$ by long$-$term liabilities.

b$.$ Divide total liabilities by total stockholders'equity.

c$.$ Divide sales by average total assets, excluding long$-$term investments. Average total assets $=($Beginning total assets $+$ Ending total assets$)-$: $2.$ To find ending total assets, use the accounting equation and substitute ending liabilities $+$ stockholders'equity for the amount.

d$.$ Divide the sum of net income plus interest expense by average total assets. Average total assets $=($Beginning total assets $+$ Ending total assets$)-$: $2.$ To find ending total assets, use the accounting equation and substitute ending liabilities $+$ stockholders'equity for the amount.

e$.$ Divide net income by average total stockholders'equity. Average total stockholders'equity $=($Beginning total stockholders'equity $+$ Ending total stockholders'equity$)-$: $2.$

f$.$ Divide net income minus preferred dividends by average common stockholders'equity. Common stockholders'equity $=$ Common stock $+$ Retained earnings. Average common stockholders'equity $=($Beginning common stockholders'equity $+$ Ending common stockholders'equity$)-$: $2.$

Learning Objective $4$ and Learning Objective $5.$