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Chapter 2: 26BP_a (page 83)

In January 2007, the Status Quo Company was formed. Total assets were \(544,000, of which \)306,000 consisted of depreciable fixed assets. Status

Quo uses straight-line depreciation of \(30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been \)29,000 per year each of the last 10 years. Other assets have not changed since 2007.

a. Compute return on assets at year-end for 2007, 2009, 2012, 2014, and 2016.

(Use $29,000 in the numerator for each year.)

Short Answer

Expert verified

Year

Return on assets

2007

5.65%

2009

6.41%

2012

8.05%

2014

9.69%

2016

12.18%

Step by step solution

01

Current Assets for the year ending 2007, 2009, 2012, 2014, and 2016 

Currentassets=Totalassets-Fixedassets=$544,000-$306,000=$238,000

02

Fixed assets

Year

Opening balance (a)

Depreciation(b)

Closing balance (a 鈥� b)

2007

$306,000

$30,600

$275,400

2008

275,400

30,600

244,800

2009

244,800

30,600

214,200

2010

214,200

30,600

183,600

2011

183,600

30,600

153,000

2012

153,000

30,600

122,400

2013

122,400

30,600

91,800

2014

91,800

30,600

61,200

2015

61,200

30,600

30,600

2016

$30,600

$30,600

0

03

Total assets

Year

Fixed assets (a)

Current assets (b)

Total assets (a+b)

2007

$275,400

$238,000

$513,400

2009

214,200

238,000

452,200

2012

122,400

238,000

360,400

2014

61,200

238,000

299,200

2016

0

$238,000

$238,000

04

Return on assets

Year

Net Income (a)

Total assets (b)

Return on assets (a/b)

2007

$29,000

$513,400

5.65%

2009

29,000

452,200

6.41%

2012

29,000

360,400

8.05%

2014

29,000

299,200

9.69%

2016

$29,000

$238,000

12.18%

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Most popular questions from this chapter

Precision Systems had sales of \(820,000, cost of goods of \)510,000, selling and administrative expense of \(60,000, and operating profit of \)103,000. What was the value of depreciation expense? Set this problem up as a partial income statement and determine depreciation expense as the 鈥減lug鈥� figure required to obtain the operating profit.

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鈥� equity?

In January 2007, the Status Quo Company was formed. Total assets were \(544,000, of which \)306,000 consisted of depreciable fixed assets. Status

Quo uses straight-line depreciation of \(30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been \)29,000 per year each of the last 10 years. Other assets have not changed since 2007.

b. To what do you attribute the phenomenon shown in part a?

Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions. (LO3-5)

c. Fixed asset turnover

The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.

Stud Clothier

Balance sheet 20X1

Assets

Liabilities and Equity

Cash

\)60,000

Account payable

\(220,000

Account receivable

240,000

Accrued taxes

30,000

Inventory

350,000

Bonds payable (long term)

150,000

Plant and equipment

410,000

Common stock

80,000

Paid in capital

200,000

Retained earnings

380,000

Total assets

\)1,060,000

Total LIbilities and Equity

$1,060,000

Compute the following:

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