Accounting What the Numbers Mean

E2.7

| Category | Financial Statement |

Cash | A | BS |

Accounts payable | L | BS |

Common stock | SE | BS |

Depreciation expense | E | IS |

Net sales | R | IS |

Income tax expense | E | IS |

Short-term investments | A | BS |

Gain on sale of land | G | IS |

Retained Earnings | SE | BS |

Dividends payable | L | BS |

Accounts receivable | A | BS |

Short-term debt | L | BS |

E3.12

a) ROI = Margin x Turnover

= (net income/sales) x (sales/average total assets)

Margin = net income/sales = 66,640/2,380,000 = 2.8%

Turnover = sales/avg. total assets = 2,380,000/680,000 = 3.5

ROI = margin x turnover = 2.8% x 3.5 = 9.8%

b) Average total assets ?

ROI = (net income/sales) x (sales/avg. total assets)

12% = (300,000/5,000,000) x (5,000,000/avg. total assets)

12% = (300,000/avg. total assets)

Avg. total assets = 300,000/12% = 2,500,000

Avg. total assets = 2,500,000

Andrea Bibbs

ACCT 401-01

Turnover?

Turnover = sales/avg. total assets = 5,000,000/2,500,000 = 2

Turnover = 2

c) Sales?

ROI = margin x turnover

ROI = (net income/sales) x (sales/avg. total assets)

1.2 = sales/2,700,000

Sales = 1.2(2,700,000) = 3,240,000

Sales = 3,240,000

Net income?

ROI = margin x turnover

ROI = (net income/sales) x (sales/avg. total assets)

17.4 = (net income/3,240,000) x (3,400,000/2,700,000)

17.4 = net income/2,700,000

Net income = 17.4(2,700,000) = 46,980,000

Net income = 46,980,000

Margin?

Margin = net income/sales = 46,980,000/3,240,000 = 14.5% round to 15%

Margin = 14.5% round to 15%