The balance sheets for a company and additional information are provided below. A COMPANYBalance SheetsDecember 31, 2024 and 2023 20242023Assets Current assets: Cash$160,000$116,000Accounts receivable70,00088,000Inventory91,00076,000Investments3,6001,600Long-term assets: Land440,000440,000Equipment750,000630,000Less: Accumulated depreciation(388,000)(228,000)Total assets$1,126,600$1,123,600Liabilities and Stockholders' Equity Current liabilities: Accounts payable$95,200$81,000Interest payable5,50011,600Income tax payable7,5004,600Long-term liabilities: Notes payable120,000240,000Stockholders' equity: Common stock660,000660,000Retained earnings238,400126,400Total liabilities and stockholders' equity$1,126,600$1,123,600Additional information for 2024:Net income is $112,000.Sales on account are $1,382,500. (All sales are credit sales.)Cost of goods sold is $1,077,150.Required:1. Calculate the following profitability ratios for 2024:2. When we compare two companies, can one have a higher return on assets while the other has a higher return on equity?1a. Gross profit ratio (%)1b. Return on assets (%)1c. Profit margin (%)1d. Asset turnover (times)1e. Return on equity (%) 2. When we compare two companies, can one have a higher return on assets while the other has a higher return on equity? Yes or No?

Profitability ratio are a class of financial metrics that are used to assess a business's ability to…

Answered: The balance sheets for a company and…

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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The balance sheets for a company and additional information are provided below.

	2024	2023
A COMPANY
Balance Sheets
December 31, 2024 and 2023
Assets
Current assets:
Cash	$160,000	$116,000
Accounts receivable	70,000	88,000
Inventory	91,000	76,000
Investments	3,600	1,600
Long-term assets:
Land	440,000	440,000
Equipment	750,000	630,000
Less: Accumulated depreciation	(388,000)	(228,000)
Total assets	$1,126,600	$1,123,600
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$95,200	$81,000
Interest payable	5,500	11,600
Income tax payable	7,500	4,600
Long-term liabilities:
Notes payable	120,000	240,000
Stockholders' equity:
Common stock	660,000	660,000
Retained earnings	238,400	126,400
Total liabilities and stockholders' equity	$1,126,600	$1,123,600

Additional information for 2024:

Net income is $112,000.
Sales on account are $1,382,500. (All sales are credit sales.)
Cost of goods sold is $1,077,150.

Required:
1. Calculate the following profitability ratios for 2024:
2. When we compare two companies, can one have a higher return on assets while the other has a higher return on equity?

1a. Gross profit ratio (%)

1b. Return on assets (%)

1c. Profit margin (%)

1d. Asset turnover (times)

1e. Return on equity (%)

2. When we compare two companies, can one have a higher return on assets while the other has a higher return on equity? Yes or No?

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