Question

Apple Inc. popularized both the personal computer and the easy-to-use graphic interface. Today it competes against many companies that rely on the Windows and Android operating systems. The company’s statement of earnings for a recent year is presented below (in millions of U.S. dollars):

Net sales	$	182,795
Cost of sales		112,258
Gross profit		70,537
Operating expenses:
Research and development		6,041
Selling, general, and administrative		11,993
Total operating expenses		18,034
Earnings from operations		52,503
Other income/(expense), net		980
Earnings before provision for income taxes		53,483
Provision for income taxes		13,973
Net earnings	$	39,510

Required:
1.	Compute the return on assets based on the information presented in the statement of earnings. Apple’s total assets averaged $220,420 million for that year and its interest expense equaled $516. (Do not round intermediate calculations. Round percentage answer to 1 decimal place (i.e., 0.124 should be entered as 12.4).)

     

2.	Assume that the following hypothetical additional transactions occurred during the fiscal year. Complete the following tabulation, indicating the sign and amount of the effect of each additional transaction. Consider each item independently and ignore income taxes. (Select "No effect" from the dropdown if there is no effect for a particular transaction.)

a.	Recorded sales on account of $700 and related cost of sales of $475.
b.	Incurred additional research and development expense of $100, which was paid in cash.
c.	Issued additional shares for $350 cash.
d.	Declared and paid dividends of $90.

     

	gross profit	earnings from operation	return on assessts
a
b
c
d

Answer 1

1.

Compute tax rate as follows: Tax rate= Income taxes EBIT $13,973 $53,483 = 26.126% Compute Net income after adjusting interest expense as follows: EBIT $53,843 Less: interest expense ($516) EBT $53,327 Provision for income taxes ($53,327 x 26.126%) ($13,932) Net Income $39,395 Net Income Return on Asset=- Average total assets $39.395 $220,420 =17.87%

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2.

Prepare journal entries as follows:

Credit Account Titles Accounts receivable Sale Debit $700 $700 $4751 Cost of sales Inventory $475 TUTTI $100 Research and development expense Cash $100 $350 Cash Common stock $350 $90 Dividend Cash $90

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Prepare Table as follows:

	Gross profit	Earnings from operations	return on assets
a	+	+	+
b	NE	-	-
c	NE	NE	-
d	NE	NE	NE