Question

Comparative balance sheets report average total assets for the year of $2,575,000 and average total equity of $1,917,000 (dollar amounts in thousands, except earnings per share). a. Prepare an income statement for the year in a multiple-step format. b-1. Compute the gross profit rate. b-2. Compute the net income as a percentage of net sales. b-3. Compute the return on assets. b-4. Compute the return on equity for the year.

Answer 1

a) SPINX INC EarningsFor the Year Ended December 31, Current Year

Cr Net sales$4,395,253

Cr Less: Cost of goods sold(2,821,455)

Cr Gross profit 1,573,798

Cr Less: Operating expenses (1,004,396)

Cr Operating income $569,402

Dr Non-operating items: Interest revenue$15,797

Dr Income tax expense (204,820)

Cr (189,023)

Cr Net earnings $380,379

Cr Earnings per share$1.70

b-1.

Gross profit $1,573,798

Net sales $4,395,253

Gross profit rate ($1,573,798 ÷ $4,395,253) =35.8%

b-2.

Net income$ 3,80,379

Net sales $4,395,253

Net income as a percentage of net sales($380,379 ÷ $4,395,253) =8.7%

b-3.

Operating income$ 5,69,402

Average total assets$2,575,000

Return on assets ($569,402 ÷ $2,575,000)=22.1%

b-4.

Net income$380,379

Average equity$1,917,000

Return on equity ($380,379 ÷ $1,917,000) =19.8%