Question

Question 3 Here are comparative statement data for Duke Company and Lord Company, two competitors. All balance sheet data are as of December 31, 2020, and December 31, 2019. Duke Company Lord Company 2020 2020 2019 2019 Net sales $1,812,000 $559,000 Cost of goods sold 297,388 1,020,156 Operating expenses 269,988 78,819 Interest expense 9,060 4,472 Income tax expense 54,360 6,708 $313,600 $78,900 Current assets 324,000 83,200 Plant assets (net) 139,200 521,400 499,400 124,500 Current liabilities 29,200 65,600 75,800 35,800 108,400 Long-term liabilities 89,000 28,800 25,400 Common stock, $10 124,500 497,000 497,000 124,500 par Retained earnings 174,400 151,200 33,300 24,300 (a)

Answer 1

(b1)

Calculate average total assets and average total common stockholders equity for 2020 as follows:

	A	B	C	D	E
1		Duke Company		Lord Company
2		2020	2019	2020	2019
3	Current assets	324000	313600	83200	78900
4	Plant assets (net)	521400	499400	139200	124500
5	Total assets	845400	813000	222400	203400
6
7	Average total assets	829200		212900
8
9		Duke Company		Lord Company
10		2020	2019	2020	2019
11	Common stock	497000	497000	124500	124500
12	Retained earnings	174400	151200	33300	24300
13	Total common stockholders equity	671400	648200	157800	148800
14
15	Average total common stockholders equity	659800		153300

Above figures have been calculated in the following manner:

	A	B	C	D	E
1		Duke Company		Lord Company
2		2020	2019	2020	2019
3	Current assets	324000	313600	83200	78900
4	Plant assets (net)	521400	499400	139200	124500
5	Total assets	=B3+B4	=C3+C4	=D3+D4	=E3+E4
6
7	Average total assets	=(B5+C5)/2		=(D5+E5)/2
8
9		Duke Company		Lord Company
10		2020	2019	2020	2019
11	Common stock	497000	497000	124500	124500
12	Retained earnings	174400	151200	33300	24300
13	Total common stockholders equity	=B11+B12	=C11+C12	=D11+D12	=E11+E12
14
15	Average total common stockholders equity	=(B13+C13)/2		=(D13+E13)/2

Calculate return on assets and return on common stockholders equity as follows:

	Formula	Duke Company	Lord Company
Return on assets	Net income/Average total assets	55.3%	80.6%
Return on common stockholders equity	Net income/Average total common stockholders equity	69.5%	111.9%

Above percentages have been calculated as follows:

	Formula	Duke Company	Lord Company
Return on assets	Net income/Average total assets	=458436/829200	=171613/212900
Return on common stockholders equity	Net income/Average total common stockholders equity	=458436/659800	=171613/153300