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hoa [83]
3 years ago
12

The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equi

pment (net) $1,412,700 Liabilities: Current liabilities $165,000 Note payable, 6%, due in 15 years 831,000 Total liabilities $996,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $1,494,000 Common stock, $10 par (no change during year) 1,494,000 Retained earnings: Balance, beginning of year $1,594,000 Net income 601,000 $2,195,000 Preferred dividends $59,760 Common dividends 143,240 203,000 Balance, end of year 1,992,000 Total stockholders' equity $4,980,000 Sales $27,384,550 Interest expense $49,860 Assuming that total assets were $5,677,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.
Business
1 answer:
choli [55]3 years ago
6 0

Answer:

a.  Ratio of fixed assets to long-term liabilities = fixed assets / long term liabilities =  $1,412,700 / $831,000 = 1.7

b.  Ratio of liabilities to stockholders' equity = liabilities / equity = $996,000 / $4,980,000 = 0.2  

c.  Asset turnover = total revenue / average assets = $27,384,550 / [($5,976,000 + $5,677,000)/2] = 4.7

d.  Return on total assets = (net income + interest expense) / average assets = ($601,000 + $49,860) / [($5,976,000 + $5,677,000)/2] = 11.2%

e.  Return on stockholders’ equity = net income / average stockholders' equity = $601,000 / {[($1,594,000 + $1,494,000 + $1,494,000) + $4,980,000] / 2} =  $601,000 / {($4,582,000 + $4,980,000) / 2} = $601,000 / $4,781,000 = 12.57%

f.  Return on common stockholders' equity = (net income - preferred dividends) / average common stock = ($601,000 - $59,760) / $1,494,000 = 36.2%

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They should not be able to successfully negotiate the terms of this loan within these parameters.

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It has been provided that RT earns 12% on his current investments and would not like to receive an interest rate of less than 12% on the loan he gives.

if RT gives a loan of $10,000 for one year, he would charge an interest rate of minimum 12%.  

Interest = $10,000*0.12

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RT requires $1,200 in interest.

It has been provided that Cynthia earns 8% on her investment.

If she borrows $10,000 and invests the amount for one year, she can earn 8% return on such amount.  

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RT requires a minimum of $1,200 as interest for 1-year loan he gives while Cynthia can pay a maximum of $10,000 as interest for 1-year loan she takes. there is mismatch between the minimum expectation to receive of lender and the maximum expectation to pay of borrower.

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The entry is record in book as

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To Barb a/c                                          $431,200

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