Question

Property, plant, and equipment (net) $3,200,000 Liabilities: Current liabilities $1,000,000 Note payable, 6%, due in 15 years 2,000,000 Total liabilities $3,000,000 Stockholders’ equity: Preferred $10 stock, $100 par (no change during year) $1,000,000 Common stock, $10 par (no change during year) 2,000,000 Retained earnings: Balance, beginning of year $1,570,000 Net income 930,000 $2,500,000 Preferred dividends $100,000 Common dividends 400,000 500,000 Balance, end of year 2,000,000 Total stockholders’ equity $5,000,000 Sales $18,750,000 Interest expense $120,000 Assuming that total assets were $7,000,000 at the beginning of the current fiscal year, determine the following. Round to one decimal place. a. Ratio of fixed assets to long-term liabilities b. Ratio of liabilities to stockholders' equity c. Asset turnover d. Return on total assets

Answer 1

Answer:

a. Ratio of fixed assets to long-term liabilities

   = Fixed assets              x 100

      Long-term liabilities

    = $3,200,000  x 100

       $2,000,000

    = 160%

b. Ratio of liabilities to shareholders' equity

     = Total liabilities              x 100

        Shareholders' equity

      = $3,000,000  x 100

         $5,000,000

      = 60%

c. Asset turnover

   = Sales

      Total assets

   = $18,750,000

       $7,000,000

   = 3 times

d. Return on total assets

   = Net income   x 100

      Total assets

   = $930,000     x 100

      $7,000,000

   = 13.29%

  Explanation:

The ratio of fixed assets to long term liabilities equals fixed assets divided by long-term liabilities multiplied by 100.

Ratio of liabilities to stockholders' equity equals total liabilities divided by total stockholders' equity multiplied by 100. The total liability is equal to current liabilities plus long-term liabilities.

Asset turnover equals sales divided by total assets.

Return on total assets equals net income divided by total assets multiplied by 100.