The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Let's see whether these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2015 $220 120 2014 $238 Revenues Cost of Purchased Crude Oil and Products 126 Other Operating Costs Income before Income Tax Expense Income Tax Expense 57 53 43 59 19 $ 24 22 Net Income $ 37 Required: 1. Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016? 2. Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014. 3. Insignia reported average net fixed assets of $165 billion in 2015 and $136 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014? 4. Insignia reported average stockholders' equity of $155 billion in 2015 and $136 billion in 2014. The company has not issued preferred stock. Compute the return on equity ratios for both years. Did the company generate greater returns for stockholders in 2015 or 2014?
The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Let's see whether these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2015 $220 120 2014 $238 Revenues Cost of Purchased Crude Oil and Products 126 Other Operating Costs Income before Income Tax Expense Income Tax Expense 57 53 43 59 19 $ 24 22 Net Income $ 37 Required: 1. Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016? 2. Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014. 3. Insignia reported average net fixed assets of $165 billion in 2015 and $136 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014? 4. Insignia reported average stockholders' equity of $155 billion in 2015 and $136 billion in 2014. The company has not issued preferred stock. Compute the return on equity ratios for both years. Did the company generate greater returns for stockholders in 2015 or 2014?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:**Analyzing Insignia Corporation's Income Statement: Impact of Gas Price Drop (2014-2015)**
The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 to $2.40 in 2015. Let’s see whether these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions).
| | 2015 | 2014 |
|-------------------------------|---------|---------|
| Revenues | $220 | $238 |
| Cost of Purchased Crude Oil and Products | 120 | 126 |
| Other Operating Costs | 57 | 53 |
| Income before Income Tax Expense | 43 | 59 |
| Income Tax Expense | 19 | 22 |
| Net Income | $24 | $37 |
**Required:**
1. **Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016?**
2. **Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014.**
3. **Insignia reported average net fixed assets of $165 billion in 2015 and $136 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014?**
4. **Insignia reported average stockholders’ equity of $155 billion in 2015 and $136 billion in 2014. The company has not issued preferred stock. Compute the return on equity ratios for both years. Did the company generate greater returns for stockholders in 2015 or 2014?**
### Explanation of Key Components:
- **Revenues**: Total income generated from sale of crude oil and related products.
- **Cost of Purchased Crude Oil and Products**: Expenses incurred to purchase crude oil and products.
- **Other Operating Costs**:
Transcribed Image Text:This table is used for analyzing the Gross Profit Percentage over two consecutive years, 2014 and 2015, and predicting the trend for 2016.
### Table: Gross Profit Analysis
#### 1-a. Gross Profit Percentage
| Year | Gross Profit Percentage |
|:--------:|:------------------------:|
| **2014** | ____________ % |
| **2015** | ____________ % |
In the table above, there's space to fill in the Gross Profit Percentage for the years 2014 and 2015.
#### 1-b. Prediction for 2016
- Likely to earn in 2016?
- ⃝ More Gross Profit
- ⃝ Less Gross Profit
This section includes an option to predict whether the Gross Profit for 2016 will be higher or lower based on the data provided for 2014 and 2015. Users are presented with two radio buttons to select their prediction: either 'More Gross Profit' or 'Less Gross Profit'.
This kind of analysis helps in understanding business performance trends and making informed financial decisions for the future.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education