Question
Shown below is the liabilities and stockholders equity section of the balance sheet for Culver Company and Larkspur Company. Each has assets totaling $ 4,063,000.
Shown below is the liabilities and stockholders equity section of the balance sheet for Culver Company and Larkspur Company. Each has assets totaling $ 4,063,000.
| Culver Co. | LarkspurCo. | |||||
| Current liabilities | $ 291,000 | Current liabilities | $ 641,000 | |||
| Long-term debt, 9% | 1,210,000 | Common stock ($20 par) | 2,780,000 | |||
| Common stock ($20 par) | 1,920,000 | Retained earnings (Cash dividends, $ 328,000) | 642,000 | |||
| Retained earnings (Cash dividends, $ 209,000) | 642,000 | |||||
| $ 4,063,000 | $ 4,063,000 | |||||
For the year, each company has earned the same income before interest and taxes.
| Culver Co. | Larkspur Co. | |||
| Income before interest and taxes | $ 1,080,000 | $ 1,080,000 | ||
| Interest expense | 108,900 | 0 | ||
| 971,100 | 1,080,000 | |||
| Income taxes (20%) | 194,220 | 216,000 | ||
| Net income | $ 776,880 | $ 864,000 |
At year-end, the market price of Culvers stock was $101 per share, and Larkspurs was $63.50. Assume balance sheet amounts are representative for the entire year. (a) Calculate the return on total assets? (Round answers to 2 decimal places, e.g. 16.85%.)
| Return on total assets | |||
| Culver Company | % | ||
| Larkspur Company | % | ||
Which company is more profitable in terms of return on total assets? Culver CompanyLarkspur Company (b) Calculate the return on common stock equity? (Round answers to 2 decimal places, e.g. 16.85%.)
| Return on common stock equity | |||
| Culver Company | % | ||
| Larkspur Company | % | ||
Which company is more profitable in terms of return on common stockholders equity? Culver CompanyLarkspur Company (c) Calculate the Net income per share. (Round answers to 2 decimal places, e.g. $6.85.)
| Net income per share | ||
| Culver Company | $ | |
| Larkspur Company | $ |
Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year. Culver CompanyLarkspur Company (d1) From the point of view of net income, is it advantageous to the stockholders of Culver Co. to have the long-term debt outstanding? NoYes (e) What is the book value per share for each company? (Round answers to 2 decimal places, e.g. $6.85.)
| Book value per share | ||
| Culver Company | $ | |
| Larkspur Company | $ |
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Intermediate Accounting
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
10th Edition
324300980, 978-0324300987
