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FINANCIAL ACCOUNTING
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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Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 2017, 20Y6, and 20Y5: December 31 Total assets Notes payable (8% interest) Common stock Preferred 3% stock, $100 par (no change during year) 20Y7 $331,000 110,000 44,000 22,000 20Y6 $298,000 110,000 44,000 22,000 Retained earnings 138,700 93,750 66,000 The 20Y7 net income was $45,610, and the 20Y6 net income was $28,410. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7. a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity for the years 20Y6 and 20Y7. When required, round to one decimal place. 20Y7 Return on total assets Return on stockholders' equity Return on common stockholders' equity b. The profitability ratios indicate that the company's profitability has improved of debt. % % 20Y5 $265,000 110,000 44,000 22,000 % 20Y6 X % % % ✓. Since the return on assets is less than ✓ the return on stockholders' equity in both years, there must be positive ✓ leverage from the use
Transcribed Image Text:Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 2017, 20Y6, and 20Y5: December 31 Total assets Notes payable (8% interest) Common stock Preferred 3% stock, $100 par (no change during year) 20Y7 $331,000 110,000 44,000 22,000 20Y6 $298,000 110,000 44,000 22,000 Retained earnings 138,700 93,750 66,000 The 20Y7 net income was $45,610, and the 20Y6 net income was $28,410. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7. a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity for the years 20Y6 and 20Y7. When required, round to one decimal place. 20Y7 Return on total assets Return on stockholders' equity Return on common stockholders' equity b. The profitability ratios indicate that the company's profitability has improved of debt. % % 20Y5 $265,000 110,000 44,000 22,000 % 20Y6 X % % % ✓. Since the return on assets is less than ✓ the return on stockholders' equity in both years, there must be positive ✓ leverage from the use
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