Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 860,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $21. All of the company’s sales are on account.

 

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year	Last Year
Assets
Current assets:
Cash	$	976		$	1,920
Accounts receivable, net		15,000			10,050
Inventory		10,000			8,440
Prepaid expenses		1,860			2,220
Total current assets		27,836			22,630
Property and equipment:
Land		6,600			6,600
Buildings and equipment, net		19,800			19,600
Total property and equipment		26,400			26,200
Total assets	$	54,236		$	48,830
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,100		$	8,600
Accrued liabilities		720			1,000
Notes payable, short term		360			360
Total current liabilities		11,180			9,960
Long-term liabilities:
Bonds payable		6,250			6,250
Total liabilities		17,430			16,210
Stockholders' equity:
Common stock		860			860
Additional paid-in capital		4,500			4,500
Total paid-in capital		5,360			5,360
Retained earnings		31,446			27,260
Total stockholders' equity		36,806			32,620
Total liabilities and stockholders' equity	$	54,236		$	48,830

 

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year	Last Year
Sales	$	85,000		$	80,000
Cost of goods sold		55,000			51,000
Gross margin		30,000			29,000
Selling and administrative expenses:
Selling expenses		9,100			8,600
Administrative expenses		12,600			11,600
Total selling and administrative expenses		21,700			20,200
Net operating income		8,300			8,800
Interest expense		750			750
Net income before taxes		7,550			8,050
Income taxes		3,020			3,220
Net income		4,530			4,830
Dividends to common stockholders		344			688
Net income added to retained earnings		4,186			4,142
Beginning retained earnings		27,260			23,118
Ending retained earnings	$	31,446		$	27,260

 

Required:

Compute the following financial data for this year:

 

1. Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

2. Net profit margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

3. Return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

4. Return on equity. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

 

	1.Gross margin percentage %2.Net profit margin percentage %3.Return on total assets %4.Return on equity %

Answer 1

Step 1 Calculation of gross margin %

Gross Margin %       =  {Gross Margin / Sales}*100

                                 = { $30,000/$85,000)*100

                                 = 35.3 %

 

 

$$$$

Step 2 Calculation of Net profit Margin %

Net profit Margin % = { Net income / Sales}*100

                                 = { $4,530/$85,000} *100

                                  = 5.3%

$$$$

Step 3 Calculation of Return on total assets(%)

Return on total assets(%) =  { Net Income /Average Total assets} *100

     where,

Net Income = $4,530

Average Total assets = ($54,236+$48,830)/2  = $51,533

 

Return on total assets(%) = {4,530/51,533}*100

                                          = 8.8%

 

$$$$

Step 4 Calculation of Return on Equity(%)

Return on Equity(%) = {Net income/ Total Stockholder's equity}*100

                                 = {$4,530/$36,806} *100

                                  = 12.31%

$$$$

Step 5 FINAL ANSWER

1.	Gross Profit Percentage	35.3	%
2.	Net profit Margin %	5.3	%
3.	Return on total assets(%)	8.8	%
4.	Return on Equity(%)	12.31	%