Calculate the following profitability ratios for 2018 and 2019. a. Gross profit ratio b. Return on assets c. Profit margin d. assets turnover Net salesCost of goods soldGross profitExpenses:VIRTUAL GAMING SYSTEMSIncome StatementsFor the years ended December 312019Operating expensesDepreciation expenseLoss on sale of landInterest expenseIncome tax expenseTotal expensesNet income$3.560.0002.490.0001.070,000965.00040,000023.0009,0001,037,000$ 33,0002018$3,086,0001,960,0001,126,000868,00032,0009,00020,00058,000987.000139.000 WAssetsCurrent assets:CashAccounts receivableInventoryPrepaid rentLong-term assets:VIRTUAL GAMING SYSTEMSInvestment in bondsLandEquipmentLess: AccumulateddepreciationTotal assetsLiabilities andStockholders EquityCurrent liabilities:Accounts payableInterest payableIncome tax payableLong-term liabilities:Notes payableStockholders equityCommon stockRetained earningsTotal liabilities andstockholders equityBalance SheetsDecember 312019$216,000 $196,00090,00091.000140.000115.00015.00013.000115,000310.000310,000(124.000)$1,072,000$ 161.00012.00013.000450.000310.0002018126.000$1,072,000115.000220,000280.000(84,000)$946 000$ 76,0008.00020.000295.000310.000237.0002017$154,00070.000145.0007.2000250.000220,000(52,000)$794 200$137 2004.00015.000235.000310.00093.000$946.000 $7.94 200

The ratio analysis helps to analyse the financial statements of the business on the basis of various elements of the financial statements. The gross profit ratio tells about the relation between gross profit and sales revenue. The net profit is calculated as difference between gross profit and operating expenses. Part 1. Gross profit ratio 2019 2018 Gross profit $1,070,000 $1,126,000 Net Sales $3,560,000 $3,086,000 Gross profit ratio (Gross profit / Net sales) 1,070,000 / 3,560,000 = 30.06% 1,126,000 / 3,086,000 = 36.49% Part 2. Return on assets 2019 2018 Net income $33,000 $139,000 Average total assets (Beginning assets + ending assets) /2 (946,000+1072,000)/2 = $1,009,000 (794,200+946,000) /2 = $870,100 Return on assets (Net income / average total assets) 33,000/1009,000 = 3.27% 139,000/870,100 = 15.98% Part 3. Profit margin 2019 2018 Net income $33,000 $139,000 Net Sales $3,560,000 $3,086,000 Net profit margin (Net income / Net sales) 33,000/3,560,000 = 0.93% 139,000/3,086,000 = 4.50% Part 4. Assets turnover 2019 2018 Net sales $3,560,000 $3,086,000 Average total assets (946,000+1072,000)/2 = $1,009,000 (794,200+946,000) /2 = $870,100 Assets turnover 3,560,000 / 1,009,000 = 3.53 times 3,086,000 / 870,100 = 3.55 times

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Accounting

Calculate the following profitability ratios for 2018 and 2019. a. Gross profit ratio b. Return on assets c. Profit margin d. assets turnover

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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Question

100%

Calculate the following profitability ratios for 2018 and 2019.

a. Gross profit ratio

b. Return on assets

c. Profit margin

d. assets turnover

Net sales
Cost of goods sold
Gross profit
Expenses:
VIRTUAL GAMING SYSTEMS
Income Statements
For the years ended December 31
2019
Operating expenses
Depreciation expense
Loss on sale of land
Interest expense
Income tax expense
Total expenses
Net income
$3.560.000
2.490.000
1.070,000
965.000
40,000
0
23.000
9,000
1,037,000
$ 33,000
2018
$3,086,000
1,960,000
1,126,000
868,000
32,000
9,000
20,000
58,000
987.000
139.000

W
Assets
Current assets:
Cash
Accounts receivable
Inventory
Prepaid rent
Long-term assets:
VIRTUAL GAMING SYSTEMS
Investment in bonds
Land
Equipment
Less: Accumulated
depreciation
Total assets
Liabilities and
Stockholders Equity
Current liabilities:
Accounts payable
Interest payable
Income tax payable
Long-term liabilities:
Notes payable
Stockholders equity
Common stock
Retained earnings
Total liabilities and
stockholders equity
Balance Sheets
December 31
2019
$216,000 $196,000
90,000
91.000
140.000
115.000
15.000
13.000
115,000
310.000
310,000
(124.000)
$1,072,000
$ 161.000
12.000
13.000
450.000
310.000
2018
126.000
$1,072,000
115.000
220,000
280.000
(84,000)
$946 000
$ 76,000
8.000
20.000
295.000
310.000
237.000
2017
$154,000
70.000
145.000
7.200
0
250.000
220,000
(52,000)
$794 200
$137 200
4.000
15.000
235.000
310.000
93.000
$946.000 $7.94 200

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