### Six Measures of Solvency or ProfitabilityThe following data were taken from the financial statements of Loveseth Inc. for the current fiscal year.#### Property, Plant, and Equipment (Net)- **Value:** $3,040,000#### Liabilities- **Current Liabilities:** $1,200,000- **Note Payable, 6%, due in 15 years:** $1,600,000- **Total Liabilities:** $2,800,000#### Stockholders' Equity- **Preferred $10 Stock, $100 Par (no change during year):** $800,000- **Common Stock, $10 Par (no change during year):** $1,600,000#### Retained Earnings- **Balance, Beginning of Year:** $1,072,000- **Net Income:** $928,000- **Preferred Dividends:** $80,000- **Common Dividends:** $320,000- **Balance, End of Year:** $1,600,000#### Total Stockholders' Equity- **Value:** $4,000,000#### Additional Financial Information- **Sales:** $17,920,000- **Interest Expense:** $96,000#### Financial RatiosAssuming that total assets were $6,000,000 at the beginning of the current fiscal year, the following metrics are calculated:- **Ratio of Fixed Assets to Long-term Liabilities:** 1.9 ✔️- **Ratio of Liabilities to Stockholders' Equity:** 0.7 ✔️Users can click on "Check My Work" to verify their calculations.This data gives insights into the company's financial health and helps in understanding its solvency and profitability. # Financial Statement Analysis### Balance Sheet and Retained Earnings**Common Stock, $10 par value (no change during the year)** - **Shares Issued**: 100,000**Retained Earnings**: - Balance at the Beginning of the Year: $1,072,000 - **Net Income**: $928,000 - **Preferred Dividends**: $80,000 - **Common Dividends**: $320,000 - **Balance at End of the Year**: Calculated total, $2,000,000### Total Stockholders’ Equity and Sales**Total Stockholders’ Equity**: Calculated value, $4,072,000 **Sales**: Calculated value, $17,100,000 ### Financial RatiosAssuming that total assets were $6,000,000 at the beginning of the current fiscal year, determine the following ratios:**a. Ratio of Fixed Assets to Long-term Liabilities**: - **Calculation**: Divide property, plant, and equipment (net) by long-term liabilities. - **Result**: 1.9 ✔️**b. Ratio of Liabilities to Stockholders' Equity**: - **Calculation**: Divide total liabilities by total stockholders' equity. - **Result**: 0.7 ✔️**c. Asset Turnover**: - **Calculation**: Divide sales by average total assets, where average total assets = (Beginning total assets + Ending total assets) / 2. - **Result**: 2.8 ✔️**d. Return on Total Assets**: - Calculation needed to determine the percentage. Incorrect currently. - **Result**: 14.5 % (Incorrect Calculation) ❌**e. Return on Stockholders’ Equity**: - Calculation required for percentage. Pending result. - **Result**: % (Pending)**f. Return on Common Stockholders’ Equity**: - Calculation needed for percentage. Incorrect currently. - **Result**: 53 % (Incorrect Calculation) ❌### Feedback Section- **Feedback**: An interactive 'Check My Work' section is available for each ratio to verify and understand the correct calculations.### Instruction Notes- Use the provided data to correctly calculate each financial ratio. Ensure accuracy in each step, particularly

Return on stockholders’ equity =Net income/Average shareholder's equity d. Return on total assets = (Net Income + Interest)/Average Total Assets = ($980,000+96,000)/6,400,000 = 16.8125 or 16.8% Average Total Assets = (Opening Total Assets+ Closing Total Assets)/2 = (6,000,000+6,800,000)/2 = 6,400,000 Closing Total Assets = Total Liabilities =2800000+800000+1600000+1600000 = $6800,000 e. Return on stockholders’ equity =Net income/Average shareholder's equity = $980,000/3,736,000 = 26.2% Average shareholder's equity = (Opening shareholder's equity +Closing shareholder's equity)/2 = ($3,472,000+4,000,000)/2 = $3,736,000 where, Opening shareholder's equity=800,000+1,600,000+1,072,000 =$3,472,000F. Return on common stockholders’ equity =(Net income-Preference dividend)/Average common shareholder's equity = (980,000-80,000)/2,936,000 = 30.65 or 30.7% Average common stockholders equity =(Opening common stockholders equity +Closing common stockholders equity)/2 = (1,600,000+1,072,000)+(1,600,000+1,600,000)/2 = 2,936,000

Business

Accounting

a. Ratio of fixed assets to long-term liabilities 1.9 b. Ratio of liabilities to stockholders' equity 0.7 C. Asset turnover 2.8 V d. Return on total assets 14.5 X % e. Return on stockholders' equity % f. Return on common stockholders' equity 53 X %

a. Ratio of fixed assets to long-term liabilities 1.9 b. Ratio of liabilities to stockholders' equity 0.7 C. Asset turnover 2.8 V d. Return on total assets 14.5 X % e. Return on stockholders' equity % f. Return on common stockholders' equity 53 X %

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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