Question

Application Problem 12-15A ai, b1 (Part Level Submission) (Ratio analysis over time) The following information comes from the accounting records of Hercep Ltd. for the first three years of its existence: 2018 2019 2020 Statement of Financial Position Assets Cash Accounts receivable Inventory Capital assets (net) Other assets $23,300 67,200 115,000 432,000 238,000 $875,500 $19,700 $27,100 50,000 144,500 136,000 227,000 459,000 484,000 204,000 268,600 $868,700 $1,151,200 Liabilities and equity Accounts payable Long-term debt Common shares Retained earnings $101,000 192,000 521,000 61,500 $875,500 $50,500 242,000 521,000 55,200 $868,700 $101,000 484,000 521,000 45,200 $1,151,200 Statement of Earnings Sales Cost of goods sold Other expenses $620,000 $770,000 (372,000) (523,600) (161,000) (220,000) 87,000 26,400 (26,100) (7,920) $50,900 $18,480 $970,000 (679,000) (218,000) 73,000 (21,900) $51,100 Income tax Net income

Answer 1

Ans. B 1	Debt to equity ratio   =   Total liabilities / Total stockholder's equity * 100
	2018	$293,000 / $582,500 * 100		50.30%
	2019	$292,500 / $576,200 * 100		50.76%
	2020	$585,000 / $566,200 * 100		103.32%
	*Calculations for Total liabilities:
		2018	2019	2020
	Accounts payable	$101,000	$50,500	$101,000
	Long term debt	$192,000	$242,000	$484,000
	Total liabilities	$293,000	$292,500	$585,000
	*Calculation of Total stockholder's equity:
		2018	2019	2020
	Common shares	$521,000	$521,000	$521,000
	Retained earnings	$61,500	$55,200	$45,200
	Total stockholder's equity	$582,500	$576,200	$566,200
Ans.	Return on assets =   Net income / Total assets * 100
	2018	$60,900 / $875,500 * 100		6.96%
	2019	$18,480 / $868,700 * 100		2.13%
	2020	$51,100 / $1,151,200 * 100		4.44%
Ans.	Return on equity =   Net income / Total stockholder's equity * 100
	2018	$60,900 / $582,500 * 100		10.45%
	2019	$18,480 / $576,200 * 100		3.21%
	2020	$51,100 / $566,200 * 100		9.03%