Question

The comparative financial statements prepared at December 31, 2017, for Pinnacle Plus showed the following summarized data 2017 2016 Income Statement Sales Revenue* Cost of Goods Sold $110,000 $ 99,000 48,000 52,000 Gross Profit Operating Expenses Interest Expense 58,000 36,000 4,000 51,000 33,000 4,000 Income before Income Tax Expense Income Tax Expense (30%) 18,000 5,400 14,000 4,200 Net Income $ 12,600 9,800 Balance Sheet Cash Accounts Receivable, Net Inventory Property and equipment, Net $ 49,500 18,000 32,000 38,000 95,000 105,000 37,000 25,000 Total Assets $206,500 $193,000 Accounts Payable Income Tax Payable $ 42,000 $ 35,000 500 40,000 1,000 40,000 Note Payable, Long-Term Total Liabilities Contributed Capital (9,000 shares) Retained Earningst 83,000 75, 500 90,000 33,500 27,500 90,000 Total Liabilities and Shareholders' Equity $206,500 $193,000 One-half of all sales are on credit. During 2017, cash dividends amounting to $6,600 were declared and paid. Required: 1-a. Compute the gross profit percentage in 2017 and 2016. (Round your answers to 1 decimal place.) Gross Profit Percentage 2017 2016 1-b. Is the trend going in the right direction? Yes No 2-a. Compute the net profit margin for 2017 and 2016. (Round your answers to 1 decimal place.) Net Profit Margin 2017 2016 2-b. Is the trend going in the right direction? Yes No 3-a. Compute the earnings per share for 2017 and 2016. (Round your answers to 2 decimal places Earnings per Share 2017 2016 3-b. Does the trend look good or bad? Good Ов Bad 4-a. Shareholders' equity totalled $100,000 at the end of 2015. Compute the return on equity (ROE) ratios for 2017 and 2016. (Round your answers to 1 decimal place.) Return orn Equity 2017 2016 4-b. Is the trend going in the right direction? Yes No 5-a. Net property and equipment totalled $110,000 at the end of 2015, Compute the fixed asset turnover ratios for 2017 and 2016. Round your answers to 2 decimal places.) Fixed Asset Turnover 2017 2016 5-b. Is the trend going in the right direction? Yes ON 6-a. Compute the debt-to-assets ratios for 2017 and 2016. (Round your answers to 2 decimal places) Debt-to- Assets 2017 2016 6-b. Is debt providing financing for a larger or smaller proportion of the company's asset growth? Larger proportion Smaller proportion 7-a. Compute the times interest earned ratios for 2017 and 2016. (Round your answers to 1 decimal place.) Times Interest Earned 2017 times 2016 times 7-b. Does the outcome of ratio in 2017 appears to be good or bad for the company? Bad Good 8-a. After Pinnacle Plus released its 2017 financial statements, the company's shares were trading at $18. After the release of its 2016 financial statements, the company's share price was $15 per share. Compute the P/E ratios for both years. (Round intermediate calculations to 2 decimal places and final answers to 1 decimal place.) Pricel Earnings 2017 2016 8-b. Does it appear that investors have become more (or less) optimistic about Pinnacle's future success? More optimistic Less optimistic

Answer 1

1-a Gross Profit Percentage # Gross Profit/ Sales 2017 2-a Net Profit margin- Net Income/ Sales Particulars Gross Profit Sales Revenue Gross Profit percentage 2016 Particulars Net Income Sales Revenue Gross Profit percentage 2017 2016 $58,000 $110,000 52.7% 51,000 599,000 51.5% $12,600 $110,000 11.5% 9,800 99,000 9.9% $58000/S11 51000 $12600/$11 9800 1-b Yes, the trend is in right direction because it is increasing 2-b Yes, the trend is in right direction because it is increasing 3-a Earning Per Share Net Income/ Common Shares outstanding 4-a Return on Equity (ROE)Net Income / Average Shareholder's Equity Particulars Net Income Common Shares Earning Per Share 2017 2016 ing Shareholders' Equity+ Closing Shareholders' Equity)/2 Average Shareholders' Equity Particulars Average Shareholders' Equity Opening Shareholders' Equity Add: Closing Shareholders' Equ Total Average Shareholders' Equity $12,600 $9,000 $1.40 9,800 $9,000 $1.09 2017 2016 117,500 5123,500 5241,000 120,500 $100,000 $117 217,500 $108,750 12600 $9800 3-b The trend look good because the earning per shares increases $241000/2) $217500/2) Net Income 12,600 $9,800 ROE 10.5% 9.0% $12600/$12 1087 4-b Yes, the trend is in right direction because it is increasing