Question

The following condensed information was reported by Peabody Toys, Inc., for 2018 and 2017:

($ in thousands)
2018 2017
Income statement information
Net sales $5,200 $4,200
Net income 180 124
Balance sheet information
Current assets $ 800 $ 750
Property, plant, and equipment (net) 1,100 950
Total assets $1,900 $1,700
Current liabilities $ 600 $ 450
Long-term liabilities 750 750
Paid-in capital 400 400
Retained earnings 150 100
Liabilities and shareholders’ equity $1,900 $1,700
Required:
1. Determine the following ratios for 2018:
a. Profit margin on sales
b. Return on assets
c. Return on shareholders’ equity
2. Determine the amount of dividends paid to shareholders during 2018.

Answer 1

1a. Profit margin on sales 3.46%

1b. Return on assets 10%

1c. Return on equity 34.29%

2. Dividend paid $130,000

Step-by-step explanation:

1a. Calculation to determine the Profit margin on sales

Using this formula

Profit margin on sales = Net Income / Net Sales

Let plug in the formula

Profit margin on sales = 180/5200

Profit margin on sales = 3.46%

1b. Calculation to determine Return on assets

First step is to calculate the Average total assets using this formula

Average total assets = ( Beginning assets + Ending Assets)/2

Let plug in the formula

Average total assets = = ( 1,700+1,900)/2

Average total assets = $1,800 thousands

Now let calculate the Return on assets using this formula

Return on assets = Net Income/Average total assets

Let plug in the formula

Return on assets = 180/1,800

Return on assets = 10%

1c Calculation to determine the Return on

shareholders’ equity

First step is to calculate the Beginning equity using this formula

Beginning equity = Beginning Paid-in capital + Beginning retained earnings

Let plug in the formula

Beginning equity= 400+100

Beginning equity= $500 thousands

Second step is to calculate the Ending equity using this formula

Ending equity = Ending Paid-in capital + ending retained earnings

Let plug in the formula

Ending equity = 400+150

Ending equity = $550 thousands

Third step is to calculate Average equity using this formula

Average equity = ( Beginning equity + Ending equity)/2

Let plug in the formula

Average equity= (500+550)/2

Average equity= $525 thousands

Now let calculate Return on equity using this formula

Return on equity = Net Income/Average equity

Let plug in the formula

Return on equity= 180/525

Return on equity= 34.29%

2. Calculation to Determine the amount of dividends paid to shareholders during 2018

Using this formula

Dividend paid = Retained earnings, beginnings + Net Income - retained earnings, ending

Let plug in the formula

Dividend paid=$100,000+$180,000-$150,000

Dividend paid= $130,000

Therefore the amount of dividends paid to shareholders during 2018 is $130,000