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iVinArrow [24]
3 years ago
7

Your boss has asked you to calculate the profitability ratios of Cold Goose Metal Works, Inc. and make comments on its second-ye

ar performance as compared to its first-year performance. The following shows Cold Goose's income statement for the last two years. The company had assets of $7,050,000 in the first year and $11,277,600 in the second year. Common equity was equal to $3,750,000 in the first year, 100% of earnings were paid out as dividends in the first year, and the firm did not issue new stock in the second year.
Net Sales $3,810,000 $3,000,000
Operating costs less depreciation and amortization 1365000 1,267,500
Depreciation and amortization $190,500 $120,000
Total Operating Costs 1,555,500 1,387,500
Operating Income (or EBIT) $225,450 $1,612,500
Less: Interest 225,450 169,313
Earnings before taxes (EBT) $2,029,050 $1,443,187
Less: Taxes (40%) 821,620 577,275
Net Income $1,217,430 $865,912

Required:
Calculate the profitability ratios of Cold Goose Metal Works, Inc.
Business
1 answer:
Alinara [238K]3 years ago
8 0

Answer:

Gross Margin % 59.2% 53.8%

 compares gross profit to sales revenue  

 

Ne income Margin 32.0% 28.9%

 compares net income to sales revenue  

 

ROA return on assets 10.8% 12.3%

net earnings relative to the company’s total assets.  

 

ROE return on equity 32.5% 23.1%

net income relative to stockholders’ equity,  

Explanation:

Net Sales                                                         3,810,000 3,000,000

Operating costs less depreciation/amortization 1,365,000 1,267,500

Depreciation and amortization                            190,500 120,000

Total Operating Costs                                        1,555,500 1,387,500

Operating Income (or EBIT)                               2,254,500 1,612,500

Less: Interest                                                           225,450 169,313

Earnings before taxes (EBT)                               2,029,050 1,443,187

Less: Taxes (40%)                                                   821,620 577,275

Net Income                                                           1,217,430 865,912

 

assets 11,277,600 7,050,000

Equity 3,750,000 3,750,000

 

Gross Margin % 59.2% 53.8%

 compares gross profit to sales revenue  

 

Ne income Margin 32.0% 28.9%

 compares net income to sales revenue  

 

ROA return on assets 10.8% 12.3%

net earnings relative to the company’s total assets.  

 

ROE return on equity 32.5% 23.1%

net income relative to stockholders’ equity,  

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Phoenix [80]

Answer:

Dr retained earnings($21,600+$15,800) $37,400.00

Cr  accumulated depreciation                                         $21,600

Cr inventory                                                                       $15,800

Explanation:

The errors that require adjustment are the overstatement and understatement of depreciation expense as well as the December 2021 overstatement of inventory.

The understatement of inventory in 2020 would have self-corrected itself in 2021 since closing inventory in 2020 deducted from costs of goods available  for sale would be introduced as opening inventory in 2021.

net effect of depreciation=understatement -overstatement=$37,500-$15,900=$21,600.00

hence retained earnings would reduce by $21,600.00

for the overstatement of inventory,retained earnings would reduce by $15,800

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3 years ago
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Answer:

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Explanation:

As per the information provided in the question, the current profit/loss after deducting all expenditure from income is as follows:

Particular                                     Amount ($)

Revenue                                      360,000

Less: Wages and Salaries          (200,000)

Less: Materials                             (75,000)

Less: New Equipment                  (30,000)

Less: Rented Property                 (20,000)

Less: Interest Costs                      (35,000)

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Answer:

The correct option is D

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