Question

Question 4 View Policies Current Attempt in Progress Cullumber Medical manufactures hospital beds and other institutional furniture. The company's comparative balance sheet and income statement for 2015 and 2016 follow. Cullumber Medical Comparative Balance Sheet As of December 31 2016 2015 Assets Current assets Cash Accounts receivable, net Inventory $304,000 1,067,500 729,000 361,000 2,461,500 8,708,770 $417,400 776,450 681,100 247,100 2,122,050 8,353,510 Other current assets Total current assets Property, plant, & equipment, net Total assets $11,170,270 $10,475,560 Liabilities and Stockholders' Equity Current liabilities Long-term debt Total liabilities Preferred stock, $5 par value Common stock, $0.25 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $3,111,000 $2,846,050 3,702,700 3,892,650 6,813,700 6,738,700 55,900 55,900 110,000 103,800 4,190,670 3,577,160 4,356,570 3,736,860 $11,170,270 $10,475,560 Cullumber Medical Comparative Income Statement and Statement of Retained Earnings For the Year Sales revenue (all on account) Cost of goods sold 2016 $10,040,000 5,340,000 4,700,000 2015 $9,613,900 5,298,750 4,315,150 Gross profit 2,840,200 2,634,150 Operating expenses Net operating income Interest expense Net income before taxes 1,859,800 337,000 1,522,800 456,840 1,681,000 308,700 1,372,300 411,690 Income taxes (30%) Net income $1,065,960 $960,610 Dividends paid 29,450 29,450 423,000 455,000 452,450 484,450 Preferred dividends Common dividends Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year 613,510 476,160 3,577,160 3,101,000 $4,190,670 $3,577,160 Calculate the following profitability ratios for 2016. (Round answers to 1 decimal place, e.g. 50.1%.) a Gross margin percentage b. Return on assets c. Return on common stockholders' equity

Answer 1

a Gross Margin % = (Net sales- Cost of Goods Sold) / Net Sales = 4700000/10040000 46.8% b Return on Assets = [Net Income + Interest expense x (1-tax rate)] / Average total assets = (1065960 + (337000 x 0.7)] / [(11170270+10475560)/2] = 1301860 / 10822915 12.0% C Return on Common Stockholder's Equity = (Net Income - Prefessential Dividend) / Average Common Stockholder's Equity = (1065960-29450) /[(110000+103800)/2] = 1036510/4490815 23.1% Note: Average common Stockholder's Equity [(5356570+3736860)/2] - [(55900+55900)/2] 4546715-55900 4490815