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Question: return ratios and leverage the following selected data are taken...

Question details
  1. Return Ratios and Leverage
  2. The following selected data are taken from the financial statements of Cedar Industries:
  3. Sales revenue $659,000
    Cost of goods sold 390,000
    Gross profit $269,000
    Selling and administrative expense 100,000
    Operating income $169,000
    Interest expense 50,000
    Income before tax $119,000
    Income tax expense (40%) 47,600
    Net income $71,400
    Accounts payable $45,000
    Accrued liabilities 70,000
    Income taxes payable 10,000
    Interest payable 25,000
    Short-term loans payable 150,000
    Total current liabilities $300,000
    Long-term bonds payable $500,000
    Preferred stock, 10%, $100 par $250,000
    Common stock, no par 600,000
    Retained earnings 350,000
    Total stockholders' equity $1,200,000
       Total liabilities and stockholders' equity $2,000,000
  4. Required:
  5. 1. Compute the following ratios for Cedar Industries:
  6. Return on sales
  7. Asset turnover (Assume that total assets at the beginning of the year were $1,600,000.)
  8. Return on assets
  9. Return on common stockholders' equity (Assume that the only changes in stockholders' equity during the year were from the net income for the year and dividends on the preferred stock.)

When computing percentage amounts, carry out calculations to four decimal places, but enter your answers to two decimal places; for example, .17856 rounds to .1786 and would be entered as 17.86.

a. Return on sales %
b. Asset turnover (round to 2 decimal places) times
c. Return on assets %
d. Return on common stockholders' equity %

2. Comment on Evergreen’s use of leverage. Has it successfully employed leverage?

  • Yes, Evergreen has successfully employed leverage because; the return on the stockholders funds is less than the return to all the providers of capital.
  • No, Evergreen has not successfully employed leverage because; the return on the stockholders funds is less than the return to all the providers of capital.
  • Yes, Evergreen has successfully employed leverage because; amount of stockholders funds is less than the amount of outside funds.
  • No, Evergreen has not successfully employed leverage because; amount of stockholders funds is less than the amount of outside funds.

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The following selected data are taken from the financial statements of Cedar Industries:

Sales revenue

$659,000

Cost of goods sold

390,000

Gross profit

$269,000

Selling and administrative expense

100,000

Operating income

$169,000

Interest expense

50,000

Income before tax

$119,000

Income tax expense (40%)

47,600

Net income

$71,400

Accounts payable

$45,000

Accrued liabilities

70,000

Income taxes payable

10,000

Interest payable

25,000

Short-term loans payable

150,000

Total current liabilities

$300,000

Long-term bonds payable

$500,000

Preferred stock, 10%, $100 par

$250,000

Common stock, no par

600,000

Retained earnings

350,000

Total stockholders' equity

$1,200,000

Total liabilities and stockholders' equity

$2,000,000

Required:

1. Compute the following ratios for Cedar Industries:

  1. Return Ratios and Leverage
    1. Return on sales
    2. Asset turnover (Assume that total assets at the beginning of the year were $1,600,000.)
    3. Return on assets
    4. Return on common stockholders' equity (Assume that the only changes in stockholders' equity during the year were from the net income for the year and dividends on the preferred stock.)

When computing percentage amounts, carry out calculations to four decimal places, but enter your answers to two decimal places; for example, .17856 rounds to .1786 and would be entered as 17.86.

a. Return on sales

%

b. Asset turnover (round to 2 decimal places)

times

c. Return on assets

%

d. Return on common stockholders' equity

%

2. Comment on Evergreen’s use of leverage. Has it successfully employed leverage?

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