Question

Review of the financial statements revealed the following for petrolis sales inc. sales $1,250,000, net income $37,500, total assets $650,000, long-term debt $750,000, interest expense $65,000 and cost of goods sold $775,000. when preparing common size financial statements interest expense would be shown as:_____.

A) 9.4%
B) 8.4%
C) 5.2%
D) 10%

Answer 1

When preparing common size financial statements, the interest expense would be shown as a percentage of the sales. In this case, the correct percentage is 5.2%.

Step-by-step explanation:

When preparing common size financial statements, the interest expense would be shown as a percentage of the sales. To find the percentage, you can divide the interest expense ($65,000) by the sales ($1,250,000) and multiply by 100:

Interest Expense as a percentage = (Interest Expense / Sales) x 100

Plugging in the values, we get:

Interest Expense as a percentage = (65000 / 1250000) x 100 = 5.2%

Therefore, the correct answer is option C) 5.2%.