Question

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. Net sales Cost of goods sold Operating expenses Interest expense Income tax expense Current assets Plant assets (net) Current liabilities Long-term liabilities Common stock, $10 par Retained earnings Duke Company 2020 2019 $1.896,000 1,020,048 257,856 7,584 54,984 322,500 $310,000 520,800 500,300 64,200 75,600 108,400 90,400 498,000 498,000 172,700 146,300 Lord Company 2020 2019 $561,000 297,330 79,662 3,927 6,171 83,500 $78,000 139,800 123,000 34,400 29,600 28,400 26,000 122,500 122,500 38,000 22,900

Answer 1

Average Total Assets = Average Current Assets + Average Plant Assets (net)
Average Total Assets = ($322,500 + $310,000) / 2 + ($520,800 + $500,300) / 2
Average Total Assets = $826,800

Return on Assets = Net Income / Average Total Assets
Return on Assets = $555,528 / $826,800
Return on Assets = 67.2%

Average Common Stockholders’ Equity = Average Common Stock + Average Retained Earnings
Average Common Stockholders’ Equity = ($498,000 + $498,000) / 2 + ($172,700 + $146,300) / 2
Average Common Stockholders’ Equity = $657,500

Return on Common Stockholders’ Equity = Net Income / Average Common Stockholders’ Equity
Return on Common Stockholders’ Equity = $555,528 / $657,500
Return on Common Stockholders’ Equity = 84.5%

Lord Company:

Average Total Assets = Average Current Assets + Average Plant Assets (net)
Average Total Assets = ($83,500 + $78,000) / 2 + ($139,800 + $123,000) / 2
Average Total Assets = $212,150

Return on Assets = Net Income / Average Total Assets
Return on Assets = $173,910 / $212,150
Return on Assets = 82.0%%

Average Common Stockholders’ Equity = Average Common Stock + Average Retained Earnings
Average Common Stockholders’ Equity = ($122,500 + $122,500) / 2 + ($38,000 + $22,900) / 2
Average Common Stockholders’ Equity = $152,950

Return on Common Stockholders’ Equity = Net Income / Average Common Stockholders’ Equity
Return on Common Stockholders’ Equity = $173,910 / $152,950
Return on Common Stockholders’ Equity = 113.7%

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