Question

Given the financial statements for Jones Corporation and Smith Corporation: JONES CORPORATION Current Assets Liabilities Cash $ 29,400 Accounts payable $ 103,000 Accounts receivable 88,300 Bonds payable (long term) 80,100 Inventory 54,500 Long-Term Assets Stockholders' Equity Gross fixed assets $ 508,000 Common stock $ 150,000 Less: Accumulated depreciation 156,800 Paid-in capital 70,000 Net fixed assets* 351,200 Retained earnings 120,300 Total assets $ 523,400 Total liabilities and equity $ 523,400 Sales (on credit) $ 1,845,000 Cost of goods sold 757,000 Gross profit $ 1,088,000 Selling and administrative expense† 325,000 Depreciation expense 59,400 Operating profit $ 703,600 Interest expense 16,300 Earnings before taxes $ 687,300 Tax expense 95,600 Net income $ 591,700 *Use net fixed assets in computing fixed asset turnover. †Includes $15,500 in lease payments. SMITH CORPORATION Current Assets Liabilities Cash $ 40,700 Accounts payable $ 84,400 Marketable securities 15,800 Bonds payable (long term) 283,000 Accounts receivable 75,900 Inventory 75,400 Long-Term Assets Stockholders' Equity Gross fixed assets $ 592,000 Common stock $ 75,000 Less: Accumulated depreciation 251,100 Paid-in capital 30,000 Net fixed assets* 340,900 Retained earnings 76,300 Total assets $ 548,700 Total liabilities and equity $ 548,700 *Use net fixed assets in computing fixed asset turnover. SMITH CORPORATION Sales (on credit) $ 1,150,000 Cost of goods sold 659,000 Gross profit $ 491,000 Selling and administrative expense† 285,000 Depreciation expense 57,300 Operating profit $ 148,700 Interest expense 23,800 Earnings before taxes $ 124,900 Tax expense 53,600 Net income $ 71,300 †Includes $15,500 in lease payments. a. Compute the following ratios. (Use a 360-day year. Do not round intermediate calculations. Input your profit margin, return on assets, return on equity, and debt to total assets answers as a percent rounded to 2 decimal places. Round all other answers to 2 decimal places.)

Answer 1

JONES CORPORATION

1.profit margin = net income /sales

= 591,700 / 1,845,000

= 32.07%

2. return on assets = net income / Total assets

= 591,700 / 523,400

= 113.05%

3. return on equity= net income / total shareholder's equity

=591,700 / 340300

= 173.88%

Note:- Total shareholder's equity = Common stock $ 150,000 + Retained earnings 120,300 +Paid-in capital 70,000

= 340300

SMITH CORPORATION

1.profit margin = net income /sales

= 71,300 /  1,150,000

= 6.2%

2. return on assets = net income / Total assets

= 71,300 /  548700

= 12.99%

3. return on equity= net income / total shareholder's equity

= 71,300 / 181300

= 39.33%

Note:- total shareholder's equity = Common stock $ 75,000 + Retained earnings 76,300 +Paid-in capital 30,000

=181300