Question

LOGIC COMPANY Comparative Income Statement For Years Ended December 31, 2016 and 2017
	2017		2016
Gross sales	$	19,000	$	15,000
Sales returns and allowances		1,000		100
Net sales	$	18,000	$	14,900
Cost of merchandise (goods) sold		12,000		9,000
Gross profit	$	6,000	$	5,900
Operating expenses:
Depreciation	$	700	$	600
Selling and administrative		2,200		2,000
Research		550		500
Miscellaneous		360		300
Total operating expenses	$	3,810	$	3,400
Income before interest and taxes	$	2,190	$	2,500
Interest expense		560		500
Income before taxes	$	1,630	$	2,000
Provision for taxes		640		800
Net income	$	990	$	1,200

LOGIC COMPANY Comparative Balance Sheet December 31, 2016 and 2017
	2017		2016
Assets
Current assets:
Cash	$	12,000	$	9,000
Accounts receivable		16,500		12,500
Merchandise inventory		8,500		14,000
Prepaid expenses		24,000		10,000
Total current assets	$	61,000	$	45,500
Plant and equipment:
Building (net)	$	14,500	$	11,000
Land		13,500		9,000
Total plant and equipment	$	28,000	$	20,000
Total assets	$	89,000	$	65,500
Liabilities
Current liabilities:
Accounts payable	$	13,000	$	7,000
Salaries payable		7,000		5,000
Total current liabilities	$	20,000	$	12,000
Long-term liabilities:
Mortgage note payable		22,000		20,500
Total liabilities	$	42,000	$	32,500
Stockholders’ Equity
Common stock	$	21,000	$	21,000
Retained earnings		26,000		12,000
Total stockholders’ equity	$	47,000	$	33,000
Total liabilities and stockholders’ equity	$	89,000	$	65,500

Calculate the return on equity (after tax) ratio. (Round your answers to the nearest hundredth.)

	2017	2016
Return on equity

Answer 1

Return on Equity
	Numerator	/	denominator	=	Return on Equity
	Net income	/	Shareholder's Equity	=	Return on Equity
2016	$   1,200.00	/	$   33,000.00	=	3.64%
2017	$       990.00	/	$   47,000.00	=	2.11%

	2017	2016
Return on Equity	2.11%	3.64%